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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934. For The Fiscal Year Ended: December 31, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934. For the transition period from -------- to
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Commission File Number: 0-26330
ASTEA INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2119058
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 Gibraltar Road, Horsham, Pennsylvania 19044
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 682-2500
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Securities registered pursuant to Section 12(b)
of the Act: None
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Securities registered pursuant to Section 12(g)
of the Act: Common Stock, $.01 par value
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ _ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes___ No X
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The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of June 28, 2002 (based on the closing price of $0.93 as quoted by
Nasdaq National Market as of such date) was approximately $7,263,793
As of March 19, 2003, 14,606,530 shares of the registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Registrant's Common Equity and Related 14
Stockholder Matters
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial 16
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 34
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes in and Disagreements with Accountants on 57
Accounting and Financial Disclosure
PART III
Item 10. Directors and Officers of the Registrant 57
Item 11. Executive Compensation 60
Item 12. Security Ownership of Certain Beneficial Owners and 63
Management
Item 13. Certain Relationships and Related Transactions 64
PART IV
Item 14. Controls and Procedures 64
Item 15. Exhibits, Financial Statement Schedules, and Reports 64
on Form 8-K
Signature Page 68
Certifications 69, 70
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PART I
Item 1. Business.
General
Astea International Inc. and subsidiaries (collectively "Astea" or the
"Company") develops, markets and supports Customer Relationship Management
("CRM") software solutions which are licensed to companies that sell and service
equipment, or sell and deliver professional services. Companies invest in
Astea's software and services to automate enterprise business processes for
purposes of cost containment, operational efficiency and management visibility.
Customers' return on investment from Astea solutions is achieved through
improved management of information, people and cash flows, thereby increasing
competitive advantages, top-line revenue and profitability.
Astea solutions are used in industries such as information technology,
medical devices and diagnostic systems, industrial controls and instrumentation,
retail systems, office automation, imaging systems, facilities management,
telecommunications and other industries with equipment sales and service
requirements. Astea's focus on enterprise solutions for organizations that sell
and deliver services is a unique CRM industry differentiator that draws upon the
Company's industry experience and core expertise.
Founded in 1979, Astea is known throughout the CRM industry, largely
from its history as a dominant provider of software solutions for field service
management and depot repair. Astea has since expanded its product portfolio to
also include integrated management applications for sales and marketing,
multi-channel customer contact centers, and professional services automation.
In 2002, Astea began commercial release of its latest Astea Alliance
CRM suite version 6 products ("Astea Alliance 6") that adapt the Company's
domain expertise and integrated business process functionality to the
Microsoft.NET Web Services framework. Astea solutions include a variety of Web
portal and wireless remote-access capabilities to integrate mobile employees,
contractors, business partners and customers into an enterprise's consolidated,
real-time management of workforce, assets and business relationships.
Astea's software has been licensed to approximately 575 companies
worldwide. Customers range from mid-size organizations to large, multinational
corporations with geographically dispersed locations around the globe. The
Company markets and supports its products through a worldwide network of direct
and indirect sales and services offices with corporate headquarters in the
United States and regional headquarters in the United Kingdom and Australia.
Sales partners include distributors (value-added resellers, system integrators
and sales agents) and OEM partners.
In addition to its own product development that is conducted at Company
facilities in the United States and Israel, Astea participates in partnerships
with complementary technology companies in order to reduce time-to-market with
new product capabilities and continually increase its value proposition to
customers. The Company's product strategies are developed from the collective
feedback from customers, industry consultants, technology partners and sales
partners, in addition to its internal product management and development. Astea
also works with its active user community who closely advises and participates
in ongoing product development efforts.
Astea provides customers with an array of professional consulting,
training and customer support services to implement its products and integrate
them with other corporate systems such as back-office financial and ERP
applications. Astea also maintains and supports its software over its installed
life cycle. The Company's experience and domain expertise in service and sales
management, distribution, logistics,
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finance, mobile technologies, Internet applications and enterprise systems
integration are made available to customers during their assessments of where
and how their business processes can be improved.
The Company's sales and marketing efforts are almost exclusively
focused on new software licensing and support services for its latest generation
of Astea Alliance products. Marketing and sales of licenses and services related
to the Company's legacy system DISPATCH-1(R) products are limited to existing
DISPATCH-1 customers.
The Company continues to support approximately 45 DISPATCH-1 customers
on maintenance contracts. Further, the Company offers a migration path to Astea
Alliance with the Company's integrated DISPATCH-1 to Alliance Conversion (iDAC)
program. The iDAC program enables long-time Astea users to leverage their
previous investments in DISPATCH-1 and economically deploy the latest, more
comprehensive and far superior Alliance functionality.
Current Product Offerings
Astea Alliance
Astea Alliance applications are designed to increase business
efficiencies by collapsing multiple, interdependent business processes into a
consolidated shared enterprise system. Astea Alliance automates front-office
sales and service processes, integrates with back-office financial and ERP
applications, and enables real-time information sharing among local, remote and
mobile employees, customers and business partners. Companies' return on
investment from Astea Alliance is obtained from higher operational efficiencies,
such as more-efficient utilization of employees and material resources, improved
sales execution and revenue generation, improved service delivery and revenue
recovery, and stronger relationships with customers and partners.
Astea Alliance is an international product with multi-lingual and
multi-currency capabilities. The latest version software, Astea Alliance 6, is
engineered with a new system architecture for Web-based deployment using
existing and emerging Microsoft.NET technologies. Prior to Astea Alliance 6,
products were engineered for Windows client/server technology and marketed as
AllianceEnterprise. AllianceEnterprise products included re-engineered and
enhanced versions of service modules that were initially introduced as
ServiceAlliance(R) in 1997, and a re-engineered and enhanced version of the
Company's sales force automation product that was initially introduced as
SalesAlliance in 1999. Astea Alliance 6 delivers all enhanced AllianceEnterprise
functionality on a Web-based platform and new module applications for
multi-channel contact centers, marketing campaign management, Professional
Services Automation (PSA), enterprise systems integration and remote access via
untethered and real-time wireless connectivity using a variety of mobile
devices.
ServiceAlliance and SalesAlliance, the earliest versions of Astea
Alliance solutions, were the Company's initial new technology offerings
following a long and highly successful history with its DISPATCH-1 legacy system
solutions. All references to Astea Alliance herein refer to the Alliance family
of products available since 1997. As of December 31, 2002, Astea Alliance
solutions have been licensed to over 200 customers worldwide. Market acceptance
of Astea Alliance by global and regional companies increased in 2002 and the
Company is aggressively pursuing opportunities for larger system implementations
with mid-size to large enterprises on a worldwide basis. See "Certain Factors
that May Affect Future Results-- Uncertain Market Acceptance of Astea Alliance;
Decreased revenues from DISPATCH-1."
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Astea Alliance 6 consists of nine applications suites:
o Astea Contact Center 6
o Astea Depot Repair 6
o Astea Field Service 6
o Astea Marketing 6
o Astea Mobile 6
o Astea Portals 6
o Astea Professional Services 6
o Astea Sales 6
o Astea Analytics 6 (available 2003)
Each suite includes two or more application modules. For example, the
Astea Field Service 6 suite includes Alliance Field Service, Alliance Contracts
and Alliance Logistics modules. All suites and modules are fully integrative,
enabling Astea Alliance configurations to meet exact customer needs.
The Astea software facilitates one-time data entry and data sharing to
maximize operational efficiencies. Anyone within a user organization who has
contact with a customer has the ability to update the status of customer records
in real-time, which ensures "one view of a customer" and eliminates any
disparity or confusion in business data among marketing, sales, customer service
and field service personnel. This includes information entered remotely by
mobile employees and by customers over the Internet. Astea Alliance synchronizes
all customer-facing activities to operate as a cohesive unit.
In addition to selected application suites and modules, Astea Alliance
configurations are delivered with system infrastructure consisting of Alliance
Global Database, Alliance Studio and Alliance Links.
Alliance Global Database is the system's enterprise database capable of
data translation for multi-national organizations to collaborate across country
lines, including support for double-byte character data sets such as for Asian
languages. Each user can interact with the system in their preferred language
and currency. Alliance Global Database also provides translation between time
zones, taxation methods, and other unit-of-measure implications of a global
enterprise.
Alliance Studio is a toolset for easily adapting system behavior and
user interfaces to specific business environments without expensive custom
programming. A customer can control how Astea Alliance automates workflows as
well as the system's intuitiveness and "look and feel" to employees, which
thereby maximizes the system's usability, effectiveness and benefits. Alliance
Studio reduces system implementation time and cost, and subsequently enables
customers to update system performance as their business needs change--all of
which contributes to the system's low cost of ownership.
Alliance Links are a family of enterprise application integration
products that interface Astea Alliance to other enterprise systems, such as
back-office financial and ERP applications, remote equipment monitoring and
diagnostic software, and wireless data transmission services. Alliance Links
extend Astea Alliance's return on investment for customers by making all
Alliance modules accessible to external software through open, well defined,
synchronous and asynchronous application programming interfaces (APIs) that are
XML based.
Astea Contact Center 6
Astea Contact Center 6 applications support call centers, information
desks, service hotlines, inside sales and telemarketing activities. Integrated,
multi-channel, inbound/outbound capabilities enable customer service
representatives to serve prospects and customers in their media of choice,
including phone, fax, e-mail or Internet. Integrated customer self-service
portals with automated email response, automated call escalation,
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and interface to Computer Telephony Integration (CTI) systems help streamline
customer interaction processes. Work scheduling and demand balancing optimize
staff utilization. Employee personal portals with access to comprehensive
real-time customer data and decision support tools including intelligent
knowledge management and scripting for problem resolution and inside sales drive
higher staff productivity. Aside from more efficient customer service and higher
levels of customer satisfaction, the objectives of Astea Contact Center software
are to reduce overhead through improved first-call resolution rates and shorter
service-call handling times.
Astea Depot Repair 6
Astea Depot Repair 6 applications automate tracking of assets through
equipment calibration and repair chains, including merchandise ownership,
location, repair status and warranty coverage. Objectives are to gain real-time
visibility of all repair chain activities, ensure compliance with warranty and
contractual agreements, respond to customer inquiries with up-to-the-minute
repair status, collect and analyze repair statistics for product design
improvement, and reduce overhead such as inventory carrying costs. Applications
support in-house, subcontractor and vendor calibration and repair; customer and
vendor exchanges and advance exchanges; equipment on loan; change of ownership;
merchandise shipments, cross shipments and pickups; consolidated repair orders;
and, storage and refurbishment programs. Integration with other Astea Alliance
modules allows repair orders and repair status queries to be initiated from
customer contact centers, field service, field sales and warehouses as well as
the repair depot.
Astea Field Service 6
Astea Field Service 6 delivers a robust set of automated capabilities
to improve management of field service activities and for field service
representatives to more efficiently complete and document assignments, manage
vehicle assets, capture expenses and generate revenue through add-on sales
during a customer contact. Applications alert dispatchers to contractual minimum
response times and expedite coordination of field force skills matching,
scheduling, dispatch and repair parts logistics. Mobile tools enable field
forces to work electronically for receiving, documenting and reporting
assignments, eliminating manual procedures, service delays and paper reporting.
The software supports all field service categories including equipment
installations, break/fix, planned maintenance and meter reading. Applications
can also be integrated with equipment diagnostic systems for fully automated
solutions that initiate and prioritize service requests and dispatch assignments
to field employees' PDAs without human intervention.
Astea Marketing 6
Astea Marketing 6 coordinates the planning, execution and analysis of
marketing campaigns. The software supports budgeting and tracking complete
multi-channel campaigns that integrate advertising, direct mail, email
marketing, telemarketing, etc. Electronic campaigns such as email and
telemarketing are further supported with list management, script development and
user interfaces for campaign execution. Marketing managers can define campaign
offerings such as products and services to be sold, pricing and discount
tolerances; assign campaign attributes; attach campaign documentation such as
descriptive text, images, slogans and lead conversion literature; and monitor
response. The big picture view enables managers to assess synergies each channel
delivers to an overall campaign and adjust channel details such as prospect
lists, scripts, budgets or offering incentives to elicit best results.
Integration with other Astea Alliance modules enables equipment and service
organizations to leverage abundant customer information for identifying new
potential revenue sources and marketing to maximize customer loyalty and base
sales opportunities.
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Astea Mobile 6
Astea Mobile 6 enables customers to match Astea Alliance mobile access
to field sales and service needs. Untethered wireless applications with
synchronized client databases are provided for laptops and Pocket PC handheld
devices. Direct-connect, real-time wireless text messaging is provided for
two-way pagers and capable mobile phones. The mobile connectivity integrates
field sales and service activity with automated front-office processes and
eliminates the time, costs, procedural delays and errors of paper reporting.
Benefits include reduced field administration costs; electronic data sharing
among field and inhouse personnel; improved speed, accuracy content and
compliance of field reporting; faster sales order processing and customer
service invoicing; and other operational efficiencies.
Astea Portals 6
Astea Portals 6 supports unattended e-business transactions for
customer self-service and self-sales ("Alliance Customer Portal") and Astea
Alliance remote system access for service agents and small satellite offices
("Alliance Employee Portal"). Alliance Customer Portal empowers customers and
lessens dependence on sales and service staff to conduct transactions that can
be performed over the Internet. It reduces routine voice and fax calls to
customer contact centers, freeing lines for customers whose critical needs do
require assistance from a service representative. It also provides another
channel to promote and sell more products and services to an existing customer
base. The customer portal can delay or eliminate needs for contact center
expansion and associated increases in facility, equipment and staffing costs.
Alliance Employee Portal enables real-time online access to the Astea Alliance
system for employees in remote locations. The Company plans to include Alliance
Partner Portals for indirect sales channel management and unattended supply
chain transactions.
Astea Professional Services 6
Astea Professional Services 6 supports management of knowledge workers,
such as deployed by professional services organizations and internal service
departments of large organizations. Suite functionality focuses on planning,
deploying and billing service engagements that can extend for days, weeks,
months and years. Applications improve resource planning and allocation,
workflow management, consultant time and expense reporting, subcontractor and
vendor invoice processing, customer billing, and visibility of service
engagements. Integration with other Astea Alliance modules delivers an
end-to-end solution to market, sell, manage and bill professional services.
Capabilities to share sales, service, project, and post-project field service
data across the enterprise enable professional services organizations to operate
with less overhead, improved cash flow, higher profitability, and more
competitive bidding.
Astea Sales 6
Astea Sales 6 consolidates and streamlines enterprise sales processes,
from quote generation through order processing, at all points of customer
contact including field sales, inside sales, contact center sales and field
service sales. Lead-to-close sales process capabilities include integration with
Astea Alliance marketing, customer support and field service applications,
leveraging all enterprise knowledge pools to increase sales opportunities,
margins and close rates. Consolidated views of sales and service data also
provide a clearer understanding of enterprise operations to drive strategic
business decisions. Sales force automation application automates business rules
and practices such as enterprise-defined sales methodologies, sales pipeline
management, territory management, contact and opportunity management,
forecasting, collaborative team selling and literature fulfilment. Other
applications prompt customer support and service staff to up sell and cross sell
during contact with customers.
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Astea Analytics 6
Astea Analytics 6, planned for introduction in 2003, will provide
pre-configured business intelligence applications for equipment and service
companies. Applications will enable Astea Alliance users to perform various
multi-dimensional analyses and trend reporting of key performance indicators.
Dashboards will graphically highlight key metrics to aid Astea Alliance users'
decision making for improving operational efficiencies, customer loyalty,
revenue and profit.
DISPATCH-1
The Company's original flagship product, DISPATCH-1, was introduced in
1986 and adopted by many Fortune 1000 companies. Astea currently supports
approximately 45 DISPATCH-1 customers on active maintenance. In 2002,
approximately 24% of the Company's total revenues were derived from license,
maintenance and professional service fees related to DISPATCH-1, compared to 35%
in 2001. See "Certain Factors that May Affect Future Results-- Uncertain Market
Acceptance of Astea Alliance; Decreased revenues from DISPATCH-1."
While Astea Alliance is the successor to DISPATCH-1 and offers a
broader CRM solution, DISPATCH-1 remains deployed in a variety of large
enterprise environments and supports thousands of users in multinational
locations. Support of these installations remains a component of the Company's
plans and DISPATCH-1 is expected to be a significant continuing source of
licensing, service and maintenance revenues to Astea for the foreseeable future
in the form of additional users on current licenses, addition of optional
modules, and ongoing maintenance fees.
DISPATCH-1, at one point one of the most widely installed field service
solutions in the world, helps organizations with complex and geographically
dispersed field service operations automate and manage call center operations
among customers, headquarters, branch offices and the field. Version 8.0 of
DISPATCH-1 supports both Internet and graphical desktop interfaces, and is
interfaced to a number of complementary third-party products designed to extend
its functionality. DISPATCH-1 has been deployed in a wide variety of large
enterprise environments. In select engagements, the Company has significantly
customized and enhanced DISPATCH-1 to specifically address the needs of a few
very large product deployments, generating an ongoing but decreasing level of
professional services and consulting revenues, as well as product maintenance
revenues.
integrated DISPATCH-1 to Alliance Conversion (iDAC)
Astea offers a cost-effective migration program (iDAC) for DISPATCH-1
customers to convert to Astea Alliance and thereby leverage their earlier
investments with the Company into the far superior and expanded Astea Alliance
applications. The iDAC program includes professional services, training and gap
analyses on Astea Alliance's expanded capabilities, project planning,
software-to-business process optimization, standardized file conversion
routines, and Astea Alliance life cycle support.
Professional Services and Customer Support Services
Astea offers a range of specialized professional and customer support
services to assist its clients in using its products effectively. These services
include business process consulting, implementation planning, project
management, customization, education and training, technical support and ongoing
software maintenance. Astea believes that its professional services capabilities
allow its clients to deploy the
8
Company's products quickly and efficiently. Together, professional services and
customer support comprised approximately 61% of the Company's total revenues in
2002 and 63% of the Company's total revenues in 2001.
Professional Services
An initial professional services engagement for Astea Alliance
typically lasts between three and six months. Such engagements usually lasted
between six and eighteen months for DISPATCH-1. For most of Astea's customers,
teams are assembled from the Company's worldwide offices to perform the required
services. Due to the more complex nature of the DISPATCH-1 legacy system
implementations and upgrades, customers that licensed these programs typically
purchased a higher volume of professional services than customers need to
purchase for Astea Alliance, which is a superior and more sophisticated
technology.
Astea's typical professional services engagement does not include
customizations, but rather includes planning, prototyping and implementation of
Astea's products within the client's organization. During the initial planning
phase of the engagement, Astea's professional services personnel work closely
with representatives of the client to prepare a detailed project plan that
includes a timetable, resource requirements, milestones, in-house training
programs, onsite business process training and demonstrations of Astea's product
capabilities within the client's organization.
The next most critical phase of the Astea professional services
engagement is the prototyping phase, in which Astea works closely with
representatives of the client to configure Astea's software functionality to the
client's specific business process requirements.
The final phase in the professional services engagement is the
implementation phase, in which Astea's professional services personnel work with
the client to develop detailed data mapping, conversions, interfaces and other
technical and business processes necessary to integrate Astea's software into
the client's computing environment. Ultimately, education plans are developed
and executed to provide the client with the process and system knowledge
necessary to effectively utilize the software and fully implement the Astea
solution. Professional services are charged on an hourly or per diem basis and
are billed, pursuant to customer work orders, usually on a weekly basis
subsequent to the work being performed.
Customer Support
The Company's customer support organization provides customers with
telephone and online technical support, as well as product enhancements, updates
and new software releases. All regions of the Company's worldwide operations are
supported by local representatives. Support is provided in real-time and usually
spoken in native languages by the Company's personnel or a distributor's
personnel familiar with local business customs and practices. Typically,
customer support fees are established as a fixed percentage of license fees and
are invoiced to customers on an annual basis. Astea's customer support
representatives are located in one office in the United States, two offices in
Europe, one office in Israel and one office in Australia.
Customers
The Company estimates that it has sold approximately 575 licenses to
customers ranging from small, rapidly growing companies to large, multinational
corporations with geographically dispersed operations and remote offices. More
than 200 licenses have been sold for Astea Alliance and the remainder for
DISPATCH-1. The broad applicability of the Company's products is demonstrated by
the wide range of companies across
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many markets and industries that use one or more of Astea's products, including
customers in information technology, medical devices and diagnostic systems,
industrial controls and instrumentation, retail systems, office automation,
imaging systems, facilities management, telecommunications, and other industries
with equipment sales and service requirements. In 2002, no single customer
accounted for more than 10% of the Company's revenues. In 2001, one customer
accounted for 11% of the Company's revenues. In 2000, no customer accounted for
more than 10% the Company's revenues.
Sales and Marketing
The Company markets its products through a worldwide network of direct
and indirect sales and services offices with corporate headquarters in the
United States and regional headquarters in the United Kingdom (European
Operations) and Australia (Asia Pacific Operations). Sales partners include
distributors (value-added resellers, system integrators and sales agents) and
OEM partners. The Company actively seeks to expand its reseller network and
establish an international indirect distribution channel targeted at the
mid-market tier. See "Certain Factors that May Affect Future Results-- Need to
Expand Indirect Sales."
Astea's direct sales force employs a consultative approach to selling,
working closely with prospective clients to understand and define their needs
and determine how such needs can be addressed by the Company's products. These
clients typically represent the mid- to high-end of the CRM software market. A
prospect development organization comprised of telemarketing representatives,
who are engaged in outbound telemarketing and inbound enquiry response to a
variety of marketing vehicles, develops and qualifies sales leads prior to
referral to the direct sales staff. Additional prospects are identified and
qualified through the networking of direct sales staff and the Company's
management as part of daily business activities.
The modular structure of Astea's software and its ongoing product
development efforts provide opportunities for incremental sales of product
modules and consulting services to existing accounts. See "Certain Factors that
May Affect Future Results-- Continued Dependence on Large Contracts May Result
in Lengthy Sales and Implementation Cycles and Impact Revenue Recognition and
Cash Flow."
Astea's corporate marketing department is responsible for product
marketing, lead generation and marketing communications, including the Company's
corporate website, dialogue with CRM industry analysts, trade conferences,
advertising, e-marketing, on-line and traditional seminars, direct mail, product
collateral and public relations. Based on feedback from customers, analysts,
business partners and market data, the marketing department provides input and
direction for the Company's ongoing product development efforts and
opportunities for professional services. Leads developed from the variety of
marketing communications vehicles are routed through the Company's Astea
Alliance sales and marketing automation system. The Company also participates in
an annual conference for users of Astea's DISPATCH-1 and Astea Alliance
products. Conference participants attend training sessions, workshops and
presentations, and interact with other Astea product users, Astea management and
staff, and technology partners, providing important input for future product
direction.
Astea's international sales accounted for 31% of the Company's revenues
in 2002, 33% of the Company's revenues in 2001 and 41% in 2000. See "Certain
Factors that May Affect Future Results--Risks Associated with International
Sales."
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Product Development
Astea's product development strategy is to provide products that
perform with exceptional depth and breadth of functionality and are easy to
implement, use and maintain. Products are designed to be flexible, modular and
scalable, so that they can be implemented incrementally in phases and expanded
to satisfy the evolving information requirements of Astea's clients and their
customers. Each product is also designed to be as hardware-platform-independent
as possible for client/server, thin-client and Web environments that can be
powered by multiple hardware platforms and operating systems. To accomplish
these goals, the Company uses widely accepted, commercially available
application development tools from Microsoft Corporation and Sybase, Inc. for
Astea Alliance and Progress Software Corporation for DISPATCH-1. These software
tools provide the Company's customers with the flexibility to deploy Astea's
products across a variety of hardware platforms, operating systems and
relational database management systems. The latest Astea Alliance products are
currently being engineered for existing and emerging Microsoft technologies such
as COM+, Microsoft ComPlus Transactions, Microsoft Message Queuing (MSMQ),
Internet Information Server (IIS) and Microsoft.NET Enterprise Servers including
Windows 2000 Server, SQL Server and BizTalk Server.
In addition to product development that is conducted at Company
facilities in the United States and Israel, Astea participates in partnerships
with complementary technology companies to reduce time-to-market with new
product capabilities and continually increase its value proposition to
customers. The Company also works with OEM partners who can integrate
AllianceEnterprise modules to complement and expand the capabilities of their
product offerings.
The Company's total expenses for product development for the years
ended December 31, 2002, 2001 and 2000, were $1,781,000, $2,590,000 and
$2,744,000, respectively; and these expenses amounted to 10%, 15% and 14% of
total revenues for 2002, 2001, and 2000, respectively. In addition, the Company
incurred capitalized software development costs of $807,000, $600,000 and
$640,000 in 2002, 2001 and 2000, respectively. The Company anticipates that it
will continue to commit substantial resources to product development in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Certain Factors that May Affect Future Results--Need
for Development of New Products."
Manufacturing
The Company's software products are distributed on CD ROMs and by
e-mail. Included with the software products are security keys (a software piracy
protection) and documentation available on CD ROM and hard copy. Historically,
the Company has purchased media and duplicating and printing services for its
product packaging from outside vendors.
Competition
The CRM software market is intensely competitive and subject to rapid
change. To maintain or increase its position in the industry, the Company will
need to continually enhance its current product offerings, introduce new
products and features and maintain its professional services capabilities. The
Company currently competes on the basis of the depth and breadth of its
integrated product features and functions, including the adaptability and
scalability of its products to specific customer environments; the ability to
deploy complex systems locally, regionally, nationally and internationally;
product quality; ease-of-use; reliability and performance; breadth of
professional services; integration of Astea's offerings with other enterprise
applications; price; and the availability of Astea's products on popular
operating systems, relational databases, Internet and communications platforms.
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Competitors vary in size, scope and breadth of the products and
services offered. The Company encounters competition generally from a number of
sources, including other software companies, third-party professional services
organizations that develop custom software, and information systems departments
of potential customers developing proprietary, custom software. In the CRM
marketplace, the Company competes against publicly held companies and numerous
smaller, privately held companies. The Company's competitors include Siebel
Systems, Inc. ("Siebel"), PeopleSoft Inc. ("PeopleSoft"), SAP AG ("SAP"), Oracle
Corporation ("Oracle"), Great Plains Software which was acquired by Microsoft
("Microsoft Great Plains"), Clarify which was acquired by Amdocs Limited
("Amdocs Clarify"), Viryanet Ltd. ("Viryanet") and a number of smaller privately
held companies. See "Certain Factors that May Affect Future Results--Competition
in the Customer Relationship Management Software Market is Intense."
Licenses and Intellectual Property
Astea considers its software proprietary and licenses its products to
its customers under written license agreements. The Company also employs an
encryption system that restricts a user's access to source code to further
protect the Company's intellectual property. Because the Company's products
allow customers to customize their applications without altering the source
code, the source code for the Company's products is typically neither licensed
nor provided to customers. The Company does, however, license source code from
time to time and maintains certain third-party source code escrow arrangements.
See "Customers" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Company seeks to protect its products through a combination of
copyright, trademark, trade secret and fair business practice laws. The Company
also requires employees, consultants and third parties to sign nondisclosure
agreements. Despite these precautions, it may be possible for unauthorized
parties to copy certain portions of the Company's products or reverse engineer
or obtain and use information that the Company regards as proprietary. The
Company presently has no patents or patent applications pending. See "Certain
Factors that May Affect Future Results--Risks of Dependence on Proprietary
Technology."
Because the software development industry is characterized by rapid
technological change, Astea believes that factors such as the technological and
creative skills of its personnel, new product developments, frequent product
enhancements, and reliable product maintenance are more important to
establishing and maintaining a technology leadership position than current legal
protections.
Employees
As of December 31, 2002, the Company, including its subsidiaries, had a
total of 137 full time employees worldwide, 63 in the United States, 18 in the
United Kingdom, 6 in the Netherlands, 33 in Israel, 14 in Australia, and 3 in
Japan. The Company's future performance depends, in significant part, upon the
continued service of its key technical and management personnel and its
continuing ability to attract and retain highly qualified and motivated
personnel in all areas of its operations. See "Certain Factors that May Affect
Future Results--Dependence on Key Personnel; Competition for Employees." None of
the Company's employees is represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with its employees to
be good.
Corporate History
The Company was incorporated in Pennsylvania in 1979 under the name
Applied System Technologies, Inc. In 1992, the Company changed its name to Astea
International Inc. Until 1986, the Company operated principally as a software
consulting firm, providing professional software consulting
12
services on a fee for service and on a project basis. In 1986, the Company
introduced its DISPATCH-1 product. In November 1991, the Company's sole
stockholder acquired the outstanding stock of The DATA Group Corporation ("Data
Group"), a provider of field service software and related professional services
for the mainframe computing environment. Data Group was merged into the Company
in January 1994. In February 1995, the Company and its sole stockholder acquired
the outstanding stock of Astea Service & Distribution Systems BV ("Astea BV"),
the Company's distributor of DISPATCH-1 and related services in Europe. In May
1995, the Company reincorporated in Delaware. In July 1995, the Company
completed its initial public offering of Common Stock. In February 1996, the
Company merged with Bendata, Inc. In June 1996, the Company acquired Abalon AB.
In September 1998 (effective July 1, 1998), the Company sold Bendata, Inc. In
December 1998, the Company sold Abalon AB. In December 1997, the Company
introduced ServiceAlliance and in October 1999, SalesAlliance, which were
subsequently re-engineered into components of the AllianceEnterprise Suite
introduced in 2001. Through 2001 and into 2002, the Company rebuilt is product
functionality for Web-based applications and in August 2002 introduced Astea
Alliance 6.
Item 2. Properties.
The Company's headquarters are located in a leased facility of
approximately 22,000 square feet in Horsham, Pennsylvania. The Company also
leases facilities for operational activities in Houten, Netherlands, and Tefen,
Israel, and for sales and customer support activities in Cranfield, England and
St. Leonards, Australia. The Company believes that suitable additional or
alternative office space will be available in the future on commercially
reasonable terms as needed.
Item 3. Legal Proceedings.
From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of business. In
addition, since the Company enters into a number of large contracts requiring
the complex installation of software products and the implementation of
considerable professional services over several quarterly periods, the Company
is from time to time engaged in discussions and deliberations with customers
regarding the adequacy and timeliness of the installation or service, product
functionality and features desired by the customer and additional work and
product requirements that were not anticipated at the commencement of the
project. These deliberations sometimes result in changes in services required,
upward or downward price adjustments, or reworking of contract terms. The
Company from time to time will reserve funds for contingencies under contract
deliberations. The Company is not a party to any material legal proceedings, the
adverse outcome of which, in management's opinion, would have a material adverse
effect on the Company's business, financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report, through the
solicitation of proxies or otherwise.
13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "ATEA." The following table sets forth the high and low closing
sale prices for the Common Stock as reported by the Nasdaq National Market for
the past two fiscal years:
2002 High Low
--------------------------------------------------------------------
First quarter $1.00 $0.72
Second quarter 1.00 0.76
Third quarter 0.97 0.51
Fourth quarter 0.75 0.45
2001 High Low
--------------------------------------------------------------------
First quarter $1.19 $0.53
Second quarter 1.37 0.53
Third quarter 1.24 0.72
Fourth quarter 1.00 0.70
As of March 19, 2003, there were approximately 90 holders of record of
the Company's Common Stock. (Because "holders of record" include only
stockholders listed with the Company's transfer agent and exclude stockholders
listed separately with financial nominees, this number does not accurately
reflect the actual number of beneficial owners of the Company's Common Stock, of
which the Company estimates there were more than 2,700 on such date.) On March
19, 2003, the last reported sale price of the Common Stock on the Nasdaq
SmallCap Market was $0.55 per share.
The Board of Directors from time to time reviews the Company's
forecasted operations and financial condition to determine whether and when
payment of a dividend or dividends is appropriate. On June 30, 2000, the Company
paid its only dividend since its initial public offering. The dividend was $2.05
per share.
14
Item 6. Selected Financial Data.
Years ended December 31, 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Statement of Income Data: (1)
Revenues:
Software license fees $ 6,504 $ 6,384 $ 6,554 $ 11,312 $ 5,822
Services and maintenance 10,294 10,973 13,763 22,509 24,061
-------------------------------------------------------------------
Total revenues 16,798 17,357 20,317 33,821 29,883
-------------------------------------------------------------------
Cost and Expenses:
Cost of software license fees 1,262 1,224 1,199 2,240 1,957
Cost of services and maintenance 6,345 6,808 10,928 17,849 18,525
Product development 1,781 2,590 2,744 4,900 5,718
Sales and marketing 6,218 5,396 6,857 8,463 7,976
General and administrative (2) 2,426 2,837 4,066 4,478 5,297
Restructuring charge (3) - 333 1,101 1,630 (800)
-------------------------------------------------------------------
Total costs and expenses 18,032 19,188 26,895 39,560 38,673
-------------------------------------------------------------------
Loss from continuing operations
before interest and taxes (1,234) (1,831) (6,578) (5,739) (8,790)
Net interest income 106 309 1,496 2,163 496
-------------------------------------------------------------------
Loss from continuing
operations before income taxes (1,128) (1,522) (3,576) (8,294)
Income tax expense (benefit) 200 - - - (803)
-------------------------------------------------------------------
Loss from continuing operations (1,328) (1,522) (5,082) (3,576) (7,491)
Gain on sale of discontinued operations,
net of taxes (1) - - 293 - 43,339
Loss from discontinued operations,
net of taxes (1) - - - - (1,697)
-------------------------------------------------------------------
Net loss $ (1,328) $ (1,522) $ (4,789) $ (3,576) $ 34,151
==================================================================
Basic and diluted (loss) earnings per share:
Continuing operations $ (0.09) $ (0.10) $ (0.35) $ (0.26) $ (0.56)
Gain on sale of discontinued operations - - 0.02 - 3.22
Discontinued operations - - - - (0.13)
-------------------------------------------------------------------
$ (0.09) $ (0.10) $ (0.33) $ (0.26) $ 2.53
==================================================================
Shares used in computing basic (loss) earnings
per share 14,603 14,631 14,570 13,899 13,478
Shares used in computing diluted (loss) earnings
per share 14,620 14,631 14,570 13,899 13,478
Balance Sheet Data: (1)
Working capital $ 6,449 $ 7,313 $ 9,668 $ 44,170 $ 45,542
Total assets 16,443 18,015 21,653 58,634 63,613
Long-term debt, less current portion - - 23 49 468
Accumulated deficit (12,568) (11,239) (9,716) (4,927) (1,351)
Total stockholders' equity 8,998 10,105 11,955 46,617 49,017
<FN>
(1) The Company sold Bendata in September 1998 (effective July 1, 1998) and
sold Abalon in December 1998. The results of Bendata and Abalon have been
treated as discontinued for all periods presented. See Note 3 of the Notes
to the Consolidated Financial Statements.
(2) A one-time accrual for consulting fees of $304,000 is included in the
fourth quarter of 1999 general and administrative expense.
(3) Included in the fourth quarter of 2001 is a restructuring charge of
$409,000 which includes cost of consolidating office space and severance of
certain personnel. The second quarter of 2000 contains a restructuring
charge of $1,101,000, which includes severance costs, there was an office
closing, and other actions aimed at reducing operating expenses. The fourth
quarter of 1999 contains a restructuring charge of $1,630,000 due to
reduced DISPATCH-1 development and billable service activity and includes
severance payments, the write-off of capitalized software for certain
DISPATCH-1 modules which will no longer be sold and reserves to settle
DISPATCH-1 contractual obligations. In the second quarter of 1998, $800,000
was reversed due to lower than expected restructuring costs. See Note 4 of
the Notes to the Consolidated Financial Statements.
(4) Certain reclassifications have been made in prior years due to the
implementation of EITF 01-14. See Note 2
</FN>
15
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
This document contains various forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. Such statements are
subject to various risks and uncertainties which could cause actual results to
vary materially from those contained in such forward looking statements. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, expected or projected. Certain of these as well as other
risks and uncertainties are described in more detail in this Annual Report on
Form 10-K.
The Company develops, markets and supports Customer Relationship
Management ("CRM") software solutions, which are licensed to companies that sell
and service equipment, or sell and deliver professional services. The Company's
principal product offering, the Astea Alliance CRM Suite, integrates and
automates sales and service business processes and thereby increases competitive
advantages, top-line revenue growth and profitability through better management
of information, people, assets and cash flows. Astea Alliance offers
substantially broader and far superior capabilities over the Company's
predecessor product, DISPATCH-1, which was designed for only field service and
customer support management applications.
The Company's products and services are primarily used in industries
such as information technology, healthcare, industrial controls and
instrumentation, retail systems, office automation, imaging systems, facilities
management and telecommunications. An eclectic group of other industries, all
with equipment sales and service requirements, are also represented in Astea's
customer base. The Company maintains offices in the United States, United
Kingdom, Australia, Israel and the Netherlands.
The Company generates revenues from two sources: software license fees
for its software products, and services and maintenance revenues from
professional services, which includes consulting, implementation, training and
maintenance related to those products.
Software license fees accounted for 39% of the Company's total revenues
in 2002. Sales of Astea Alliance accounted for 37% of total revenues and add-on
sales to existing DISPATCH-1 users accounted for 2% of total revenues. Software
license fee revenues also include some fees from the sublicensing of third-party
software, primarily relational database licenses. Typically, customers pay a
license fee for the software based on the number of licensed users. Depending on
the contract terms and conditions, software license fees are recognized as
revenue upon delivery of the product if no significant vendor obligations remain
and collection of the resulting receivable is deemed probable. If significant
vendor obligations exist at the time of delivery or if the product is subject to
uncertain customer acceptance, revenue is deferred until no significant
obligations remain or acceptance has occurred.
The remaining component of the Company's revenues consists principally
of fees derived from professional services associated with the implementation
and deployment of the Company's software products and maintenance fees for
ongoing customer support, primarily external customer technical support services
and product enhancements. Professional services (including training) are charged
on an hourly or daily basis and billed on a regular basis pursuant to customer
work orders. Training services may also be charged on a per-attendee basis with
a minimum daily charge. Out-of-pocket expenses incurred by company
16
personnel performing professional services are typically reimbursed by the
customer. The Company recognizes revenue from professional services as the
services are performed. Maintenance fees are typically paid to the Company under
agreements entered into at the time of the initial software license. Maintenance
revenue, which is invoiced annually upon the expiration of the warranty period,
is recognized ratably over the term of the agreement, which is usually twelve
months.
Critical Accounting Policies and Estimates
The Company's significant accounting policies are more fully described
in its Summary of Accounting Policies, Note 2, to the Company's consolidated
financial statements. The preparation of financial statements in conformity with
accounting principles generally accepted within the United States requires
management to make estimates and assumptions in certain circumstances that
affect amounts reported in the accompanying financial statements and related
notes. In preparing these financial statements, management has made its best
estimates and judgments of certain amounts included in the financial statements,
giving due consideration to materiality. The Company does not believe there is a
great likelihood that materially different amounts would be reported related to
the accounting policies described below; however, application of these
accounting policies involves the exercise of judgments and the use of
assumptions as to future uncertainties and, as a result, actual results could
differ from these estimates.
Revenue Recognition
Revenues are recognized in accordance with Statement of Operations
Procedures (SOP) 97-2, which provides guidelines on the recognition of software
license fee revenue. Principally, revenue may be recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the license fee is
fixed and determinable and the collection of the fee is probable. The Company
allocates a portion of its software revenue to post-contract support activities
or to other services or products provided to the customer free of charge or at
non-standard discounts when provided in conjunction with the licensing
arrangement. Amounts allocated are based upon standard prices charged for those
services or products. Software license fees for resellers or other members of
the indirect sales channel are based on a fixed percentage of the Company's
standard prices. The Company recognizes software license revenue for such
contracts based upon the terms and conditions provided by the reseller to its
customer.
Revenue from post-contract support is recognized ratably over the term
of the contract on a straight-line basis. Consulting and training service
revenue is generally recognized at the time the service is performed. Fees from
licenses sold together with consulting services are generally recognized upon
shipment, provided that the contract has been executed, delivery of the software
has occurred, fees are fixed and determinable and collection is probable. In
instances where the aforementioned criteria have not been met, both the license
and the consulting fees are recognized under the percentage of completion method
of contract accounting.
In limited instances, the Company will enter into contracts for which
revenue is recognized under contract accounting. The accounting for such
arrangements requires judgement, which impacts the timing of revenue recognition
and provision for estimated losses, if applicable.
Accounts Receivable
The Company evaluates the adequacy of its allowance for doubtful
accounts at the end of each quarter. In performing this evaluation, the Company
analyzes the payment history of its significant past due accounts, subsequent
cash collections on these accounts and comparative accounts receivable aging
statistics. Based on this information, along with consideration of the general
strength of the economy, the Company develops what it considers to be a
reasonable estimate of the uncollectible amounts included in accounts
17
receivable. This estimate involves significant judgement by the management of
the Company. Actual uncollectible amounts may differ from the Company's
estimate.
Capitalized software research and development costs
The Company accounts for its internal software development costs in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." Accordingly, all costs incurred subsequent to attaining technological
feasibility are capitalized and amortized over a period not to exceed three
years. Technological feasibility is attained when software products reach Beta
release. Costs incurred prior to the establishment of technological feasibility
are charged to product development expense. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require considerable judgment by management with respect to
certain external factors, including, but not limited to, anticipated future
revenues, estimated economic life and changes in software and hardware
technologies. Upon the general release of the software product to customers,
capitalization ceases and such costs are amortized, using the straight-line
method, on a product-by-product basis over the estimated life, which is
generally three years. All research and development expenditures are charged to
research and development expense in the period incurred.
Recent Accounting Pronouncements
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others" ("Interpretation No. 45"). This
Interpretation elaborates on the existing disclosure requirements for most
guarantees, including loan guarantees such as standby letters of credit. It also
clarifies that at the time a company issues a guarantee, the company must
recognize an initial liability for the fair market value of the obligations it
assumes under that guarantee and must disclose that information in its interim
and annual financial statements. The initial recognition and measurement
provisions of Interpretation No. 45 apply on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of Interpretation No.
45 is not expected to have a material impact on our consolidated results of
operations, financial position or cash flows.
FIN 46, Consolidation of Variable Interest Entities, clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is applicable
immediately for variable interest entities created after January 31, 2003. For
variable interest entities created prior to January 31, 2003, the provisions of
FIN 46 are applicable no later than July 1, 2003. We do not expect this
Interpretation to have an effect on the consolidated financial statements.
In August 2001, the FASB issued Statement No. 143, "Accounting for
Asset Retirement Obligations" ("SFAS 143"), which provides the accounting
requirements for retirement obligations associated with tangible long-lived
assets. SFAS 143 requires entities to record the fair value of the liability for
an asset retirement obligation in the period in which it is incurred and is
effective for our 2003 fiscal year. The adoption of SFAS 143 is not expected to
have a material impact on our consolidated results of operations, financial
position or cash flows.
In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This statement supersedes SFAS Statement No. 121,
18
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." This new pronouncement also amends Accounting Research
Bulletin (ARB) No. 51 "Consolidated Financial Statements," to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. SFAS 144 requires that one accounting model be used for long-lived
assets to be disposed of by sale, whether previously held and used or newly
acquired and also broadens the presentation of discontinued operations to
include more disposal transactions. SFAS 144 is effective for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years.
Adoption of SFAS 144 on January 1, 2002, did not have any impact on our
financial position, cash flows or results of operations for the year ended
December 31, 2002.
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"). The rescission of FASB No. 4, "Reporting Gains and
Losses from Extinguishment of Debt" applies to us. FASB No. 4 required that
gains and losses from extinguishment of debt that were included in the
determination of net income be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. SFAS 145 is effective
for our fiscal year beginning January 1, 2003. Effective January 1, 2003,
pursuant to SFAS 145, the losses on early extinguishment of debt, if any, will
be included in "Other expenses" in our consolidated Statements of Income.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities: ("SFAS 146"), which addresses
financial accounting and reporting for costs associated with exit or disposal
activities, and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)" which
previously governed the accounting treatment for restructuring activities. SFAS
146 applies to costs associated with an exit activity that does not involve an
entity newly acquired in a business combination or with a disposal activity
covered by SFAS 144. Those costs include, but are not limited to, the following:
(1) termination benefits provided to current employees that are involuntarily
terminated under the terms of a benefit arrangement that, in substance, is not
an ongoing benefit arrangement or individual deferred-compensation contract, (2)
costs to terminate a contract that is not a capital lease, and (3) costs to
consolidate facilities or relocate employees. SFAS 146 does not apply to costs
associated with the retirement of long-lived assets covered by SFAS 143. SFAS
146 will be applied prospectively and is effective for exit or disposal
activities initiated after December 31, 2002. We do not expect adoption of SFAS
146 to materially impact its financial position, results of financial position,
results of operations, or cash flows.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure, an amendment of FASB
Statement No. 123 ("SFAS 148"). SFAS 148 amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation. It also amends the
disclosure provisions of that Statement to require prominent disclosure about
the effects on reported net income of an entity's accounting policy decisions
with respect to stock-based employee compensation. Finally, this Statement
amends Accounting Principles Board ("APB") Opinion No. 28, Interim Financial
Reporting, to require disclosure about those effects in interim financial
information. SFAS 148 is effective for financial statements for fiscal years
ending after December 15, 2002. The Company expects to continue to utilize the
intrinsic valuation method for recording employee stock based compensation.
19
Results of Continuing Operations
The following table sets forth, for the periods indicated, selected
financial data and the percentages of the Company's total revenues represented
by each line item presented for the periods presented:
Years ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------
Revenues:
Software license fees 38.7 % 36.8 % 32.3 %
Services and maintenance 61.3 63.2 67.7
-----------------------------------------
Total revenues 100.0 % 100.0 % 100.0 %
-----------------------------------------
Costs and expenses:
Cost of software license fees 7.5 % 7.1 % 5.9 %
Cost of services and maintenance 37.8 39.2 53.8
Product development 10.6 14.9 13.5
Sales and marketing 37.0 31.1 33.8
General and administrative 14.4 16.3 20.0
Restructuring charge - 1.9 5.4
-----------------------------------------
Total costs and expenses 107.3 % 110.5 % 132.4 %
-----------------------------------------
Comparison of Years Ended December 31, 2002 and 2001
Revenues. Total revenues decreased $559,000, or 3%, to $16,798,000 for
the year ended December 31, 2002 from $17,357,000 for the year ended December
31, 2001. Software license revenues increased by 2% in 2002, compared to 2001.
Services and maintenance fees for 2002 amounted to $10,294,000, a 6% decrease
from 2001.
Software license fee revenues increased $120,000 or 2% to $6,504,000 in
2002 from $6,384,000 in 2001. Astea Alliance license fee revenues increased to
$6,220,000 in 2002 from $5,888,000 in 2001, an increase of 6% which reflects the
growing acceptance of the Astea Alliance CRM suite of software products. License
fee revenues for DISPATCH-1 decreased $213,000 or 43% from $496,000 in 2001 to
$283,000 in 2002 primarily due to the Company's planned movement from its legacy
software to the Astea Alliance CRM suite.
Total services and maintenance revenues decreased $679,000 or 6% to
$10,294,000 in 2002 from $10,973,000 in 2001. The decrease in service and
maintenance revenues is attributable to a decrease of $1,760,000 in DISPATCH-1
revenues partially offset by an increase in Astea Alliance revenues of
$1,081,000. Astea Alliance service and maintenance revenues increased to
$6,540,000 in 2002 from $5,459,000 in 2001 due to the growing Astea Alliance
customer base. DISPATCH-1 service and maintenance revenues decreased 32% to
$3,754,000 in 2002 from $5,514,000 in 2001 due to an ongoing decrease in the
number of customers under service and maintenance contracts. As a result of the
DISPATCH-1 source code sales, which enables the users to customize the software,
and decreasing demand for DISPATCH-1, the decrease in service and maintenance
revenue is expected to continue in 2003.
In 2002 and 2000, no customer accounted for more than 10% of its
revenues. In 2001, the Company had one significant customer that accounted for
11% of its revenues.
Costs of Revenues. Costs of software license fee revenues increased 3%,
or $38,000, to $1,262,000 in 2002 from $1,224,000 in 2001. Included in the cost
of software license fees is the fixed cost of capitalized software amortization.
Capitalized software amortization increased to $870,000 in 2002 from $800,000 in
2001. The increase in amortization of capitalized software is due to the
increase in software capitalized. The software licenses gross margin percentage
remained unchanged in 2002 at 81%, as compared to 2001.
20
The costs of services and maintenance revenues decreased 7%, or
$463,000, to $6,345,000 in 2002 from $6,808,000 in 2001. The service and
maintenance gross margin percentage remained unchanged at 38% in 2002, as
compared to 2001.
Product Development. Product development expenses decreased 31%, or
$809,000, to $1,781,000 in 2002 from $2,590,000 in 2001. Product development as
a percentage of total revenue decreased to 11% in 2002 compared to 15% in 2001.
The Company's total product development costs, including capitalized software
development costs were $2,588,000 or 15% of revenues in 2002 compared to
$3,190,000, which was 19% of revenues in 2001, a decrease of $602,000 or 19%.
The decrease in product development expenses is primarily attributable to the
strengthening of the US dollar against the Israel shekel, which is where the
Company performs most of its development. Despite this decrease, development
employee headcount remained unchanged. The Company has focused its development
effort exclusively on the upgrade of the Astea Alliance suite of products. In
2003, the Company expects to slightly increase its development costs relative to
the amount spent in 2002.
Sales and Marketing. Sales and marketing expenses increased 15%, or
$822,000, to $6,218,000 in 2002 from $5,396,000 in 2001. The increase supports
newly released versions of its Astea Alliance suite of software products. The
Company's focused on improving its market presence through intensified marketing
efforts to increase awareness of the Company's products. This occurred through
the use of Webinars focused in the vertical industries in which the Company
operates, attendance at selected trade shows and increased investment in lead
generation for its sales force. Sales and marketing expense as a percentage of
total revenues increased to 37% in 2002 from 31% in 2001.
General and Administrative. General and administrative expenses
decreased 14%, or $411,000, to $2,426,000 in 2002 from $2,837,000 in 2001. As a
percentage of total revenues, general and administrative expenses decreased to
14% in 2002 compared to 16% in 2001. This decrease primarily results from the
restructuring that occurred in 2001, as well as ongoing efforts to control all
operating costs.
Restructuring Charge. At the end of December, 2001, the Company
recorded a restructuring charge of $409,000 in connection with severance costs
to downsize the Company's employment roles and eliminate excess office space.
Additionally, the Company reversed $76,000 of restructuring costs relating to
the 2000 restructuring plan determined to be no longer needed (See Note 4 in the
Notes to the Consolidated Financial Statements). In the fourth quarter of 2002,
the Company determined that it had over accrued $24,000 from is 2001
restructuring charge. This was reversed in the last quarter of 2002 and included
in general and administrative expenses.
Net Interest Income. Net interest income decreased $203,000, to
$106,000 in 2002 from $309,000 in 2001. This decrease was primarily attributable
to significantly lower interest rates paid in 2002 on invested cash and the
reduction in cash balances which are used to fund operations.
Income Tax Expense. The Company accounts for income taxes in accordance
with SFAS No. 109 "Accounting for Income Taxes" which requires that deferred tax
assets and liabilities be recognized using enacted tax rates for the effect of
temporary differences between the book and tax basis of recorded assets and
liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax asset will not be realized.
The realizability of the deferred tax assets is evaluated quarterly by
assessing the valuation allowance and by adjusting the amount of the allowance,
if necessary. The factors used to assess the likelihood of realization are the
forecast of future taxable income and available tax planning strategies that
could be implemented to realize the net deferred tax asset. During the year
ended December 31, 2002, the Company
21
recorded a tax expense of $200,000 to increase its valuation allowance related
to its net deferred tax asset based on an assessment of what portion of the
asset is more likely than not to be realized, in accordance with FSAS No. 109.
The Company will review this provision periodically in the future as
circumstances change.
International Operations. Total revenue from the Company's
international operations declined by $486,000, or 8.6% to $5,141,000 in 2002
from $5,627,000 in 2001. The decrease in revenue from international operations
was primarily attributable to the reductions in license revenues from the Astea
Alliance suite. The economic slowdown in both Europe and the Pacific Rim
severely impacted the operating results of the Company. International revenues
from professional services and maintenance were similar to those in 2001.
International operations resulted in net income of $4,000 for 2002 compared to a
net income of $226,000 in 2001. The decrease in income resulted primarily from
the decline in license sales resulting from depressed world wide operating
conditions in both Europe and the Pacific Rim.
Comparison of Years Ended December 31, 2001 and 2000
Revenues. Total revenues decreased $2,960,000, or 15%, to $17,357,000
for the year ended December 31, 2001 from $20,317,000 for the year ended
December 31, 2000. Software license revenues decreased by 3% in 2001, compared
to 2000. Services and maintenance fees for 2001 amounted to $10,973,000, a 20%
decrease from 2000.
Software license fee revenues decreased $170,000 or 3% to $6,384,000 in
2001 from $6,554,000 in 2000. Astea Alliance license fee revenues increased to
$5,888,000 in 2001 from $3,414,000 in 2000, an increase of 72% which reflects
the growing acceptance of the Astea Alliance CRM suite of software products.
License fee revenues for DISPATCH-1 decreased $2,644,000 or 84% from $3,140,000
in 2000 to $496,000 in 2001 primarily due to the Company's planned movement from
its legacy software to the Astea Alliance CRM suite.
Total services and maintenance revenues decreased $2,790,000 or 20% to
$10,973,000 in 2001 from $13,763,000 in 2000. The decrease in service and
maintenance revenues is attributable to a decrease in DISPATCH-1 revenues
partially offset by an increase in Astea Alliance revenues. Astea Alliance
service and maintenance revenues increased to $5,459,000 in 2001 from $4,991,000
in 2000 due to the growing Astea Alliance customer base. DISPATCH-1 service and
maintenance revenues decreased 34% or $2,876,000 to $5,514,000 in 2001 from
$8,390,000 in 2000 due to an ongoing decrease in the number of customers under
service and maintenance contracts and the completion of two significant
long-term projects in the first quarter of 2000. As a result of the DISPATCH-1
source code sales in 2000, which enables the users to customize the software,
and decreasing demand for DISPATCH-1, the decrease in service and maintenance
revenue is expected to continue in 2002.
In 2001, the Company had one significant customer that accounted for
11% of its revenues. In 2000, no customer accounted for more than 10% of its
revenues.
Costs of Revenues. Costs of software license fee revenues increased 2%,
or $25,000, to $1,224,000 in 2001 from $1,199,000 in 2000. Included in the cost
of software license fees is the fixed cost of capitalized software amortization.
Capitalized software amortization was $800,000 in both 2001 and 2000. The small
increase in cost of software license fees was due to costs of miscellaneous
hardware included in a license sale. The software licenses gross margin
percentage was 81% in 2001 compared to 82% in 2000. The decrease in gross margin
percentage was attributable to the cost of items resold to customers,
principally third party software and hardware.
22
The costs of services and maintenance revenues decreased 38%, or
$4,120,000, to $6,808,000 in 2001 from $10,928,000 in 2000. The service and
maintenance gross margin percentage increased to 38% in 2001 from 21% in 2000.
The improvement in gross margin is attributable to improved personnel
utilization and the elimination of certain redundant positions in 2000. The
gross margin improvement is also a result of the decrease in third party
maintenance costs associated with the decline in DISPATCH-1 maintenance
revenues.
Product Development. Product development expenses decreased 6%, or
$154,000, to $2,590,000 in 2001 from $2,744,000 in 2000. Product development as
a percentage of total revenue increased to 15% in 2001 compared to 14% in 2000.
The Company's total product development costs, including capitalized software
development costs were $3,190,000 or 19% of revenues in 2001 compared to
$3,384,000, which was 17% of revenues in 2000, a decrease of $194,000 or 6%. The
decrease in product development expenses is primarily attributable to reduced
third party consultant costs. The Company has focused its development effort
exclusively on the upgrade of the Astea Alliance suite of products. In 2002, the
Company expects to pay similar development costs as incurred in 2001.
Sales and Marketing. Sales and marketing expenses decreased 21%, or
$1,461,000, to $5,396,000 in 2001 from $6,857,000 in 2000. The decrease resulted
primarily from the Company's cost restructuring efforts that occurred in the
middle of 2000 as well as lower commissions as a result of lower total revenues
in 2001. However, the Company continues to make a concentrated effort to
increase market share and expand its presence through both direct and indirect
channels. Sales and marketing expense as a percentage of total revenues
decreased to 31% in 2001 from 34% in 2000.
General and Administrative. General and administrative expenses
decreased 30%, or $1,229,000, to $2,837,000 in 2001 from $4,066,000 in 2000. As
a percentage of total revenues, general and administrative expenses decreased to
16% in 2001 compared to 20% in 2000. This decrease primarily results from the
restructuring that occurred in 2000, minimal legal activity in 2001 as compared
to 2000 which resulted in lower legal costs, as well as a favorable outcome on
an arbitration case which resulted in the reversal of a $250,000 accrual.
Restructuring Charge. At the end of December, 2001, the Company
recorded a restructuring charge of $409,000 in connection with severance costs
to downsize the Company's employment roles and eliminate excess office space.
Additionally, the Company reversed $76,000 of restructuring costs relating to
the 2000 restructuring plan determined to be no longer needed (See Note 4 in the
Notes to the Consolidated Financial Statements). During the second quarter of
2000, the Company also recorded a restructuring charge of $1,101,000 in
connection with the closing of one of its offices, relocation of other offices
to smaller facilities, termination fees related to operating leases and
severance costs related to downsizing the Company's employment roles.
Net Interest Income. Net interest income decreased $1,187,000, to
$309,000 in 2001 from $1,496,000 in 2000. This decrease was primarily
attributable to significantly lower interest rates paid in 2001 on invested cash
and the reduction in cash balances resulting from the special dividend of $2.05
per share, totaling $30,376,000, paid June 30, 2000.
International Operations. Total revenue from the Company's
international operations declined by $2,536,000, or 31% to $5,627,000 in 2001
from $8,163,000 in 2000. The decrease in revenue from international operations
was primarily attributable to the reductions in license revenues from DISPATCH-1
due to sales of source code in 2000. The source code sales also contributed to a
reduction in international maintenance revenues on DISPATCH-1. Revenues from
sales of Astea Alliance licenses, services and maintenance were similar to those
in 2000. International operations resulted in net income of $226,000 for 2001
compared to a loss of $819,000 in 2000. The increase in income resulted
primarily from the
23
restructuring charge, which took place during the second quarter of 2000, the
elimination of certain redundant costs and increase sales activity in Japan
during 2001.
Liquidity and Capital Resources
Net cash used in operating activities was $455,000 for the year ended
December 31, 2002 compared to $439,000 for the year ended December 31, 2001. The
$16,000 increase in the use of cash was primarily attributable to a $294,000
increase in accounts receivable in 2002 compared to a $460,000 decrease in 2001,
a $385,000 decrease in accrued restructuring offset by a $186,000 increase in
accounts payable in 2002, compared to a decrease of $1,522,000 in accounts
payable in 2001, and a $203,000 decrease in deferred revenues in 2002 compared
to a $268,000 decrease in 2001.
The Company generated $1,477,000 of cash for investing activities in
2002 compared to using $325,000 in 2001. The change from last year was primarily
attributable to the sale of $2,998,000 of investments in 2002 compared to
selling $519,000 of investments in 2001. Capital expenditures were $404,000 in
2002 compared to $244,000 in 2001. Capitalized software costs were $807,000 in
2002 compared to $600,000 in 2001. The Company also purchased a certificate of
deposit, which is security for a letter of credit, for $300,000.
The Company used $31,000 in financing activities for the year ended
December 31, 2002 compared to using $343,000 for the year ended December 31,
2001. The decrease in cash used for financing activities was principally
attributable to the purchase of 223,000 shares of treasury stock for $223,000 in
2001. During 2002, the Company did not purchase any treasury stock. In addition,
the Company paid $35,000 to repay its outstanding debt in 2002, compared to
paying $126,000 in 2001.
At December 31, 2002, the Company had a working capital ratio of
approximately 1.8:1, with cash of $5,267,000. The Company believes that it has
adequate cash resources to make the investments necessary to maintain or improve
its current position and to sustain its continuing operations for the
foreseeable future. The Board of Directors from time to time reviews the
Company's forecasted operations and financial condition to determine whether and
when payment of a dividend or dividends is appropriate. The Company does not
plan any significant capital expenditures in 2003. In addition, it does not
anticipate that its operations or financial condition will be affected
materially by inflation.
Contractual Obligations and Commercial Commitments
The following tables summarize our contractual and commercial obligation as of
December 31, 2002:
Payment Due By Period
2003 2004 2005 2006 2007 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Contractual Obligations:
Long-term Debt $ - $ - $ - $ - $ - $ - $ -
Capital Leases - - - - - - -
Operating Leases 782,000 770,000 555,000 465,000 469,000 972,000 4,013,000
24
Amounts of Commitment Expiration Per Period
2003 2004 2005 2006 2007 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Other Commercial
Commitments:
Letters of Credit $ 300,000 $ - $ - $ - $ - $ - $300,000
Certain Factors That May Affect Future Results
The Company does not provide forecasts of its future financial
performance. From time to time, however, information provided by the Company or
statements made by its employees may contain "forward looking" information that
involves risks and uncertainties. In particular, statements contained in this
Annual Report on Form 10-K that are not historical fact may constitute forward
looking statements and are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results of
operations and financial condition have varied and may in the future vary
significantly from those stated in any forward looking statements. Factors that
may cause such differences include, but are not limited to, the risks,
uncertainties and other information discussed within this Annual Report on Form
10-K, as well as the accuracy of the Company's internal estimates of revenue and
operating expense levels.
The following discussion of the Company's risk factors should be read
in conjunction with the financial statements and related notes thereto set forth
elsewhere in this report. The following factors, among others, could cause
actual results to differ materially from those set forth in forward looking
statements contained or incorporated by reference in this report and presented
by management from time to time. Such factors, among others, may have a material
adverse effect upon the Company's business, results of operations and financial
conditions:
Recent History of Net Losses.
The Company has a history of net losses. In particular, the Company
incurred net losses of approximately $1.3 million in fiscal 2002, $1.5 million
in fiscal 2001 and $4.8 million in fiscal 2000. As of December 31, 2002, we had
stockholders' equity of approximately $9.0 million which is net of an
accumulated deficit of approximately $12.6 million. Moreover, we expect to
continue to incur additional operating expenses resulting primarily from
research and development. As a result, we will need to generate significant
revenues to achieve and maintain profitability. We may not be able to achieve
the necessary revenue growth or profitability on an annual basis in the future.
If we do not attain or sustain profitability in the future, we may be unable to
continue our operations.
Uncertain Market Acceptance of Astea Alliance; Decreased revenues from
DISPATCH-1.
In each of 2002, 2001, and 2000, 24%, 35% and 58%, respectively, of the
Company's total revenues was derived from the licensing of DISPATCH-1 and the
providing of professional services in connection with the implementation,
deployment and maintenance of DISPATCH-1 installations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company originally introduced Astea Alliance in August 1997 in order to target a
market segment in which DISPATCH-1 was not cost-effective or attractive.
Subsequent, rapid changes in technology have now positioned the Astea Alliance
Suite, introduced in 2001 and which includes the Astea Alliance functionality,
to supercede DISPATCH-1 as the company's flagship product. As a result, there
are no sales planned or anticipated for DISPATCH-1 to new customers. Sales to
existing customers comprised 100% of DISPATCH-1 license revenue in 2002 and
2001. DISPATCH-1 revenues have declined in each of the last three fiscal years
and that trend is expected to continue and accelerate.
25
While the Company has licensed Astea Alliance to over 210 companies
worldwide in 1998 through 2002, revenues from sales of Astea Alliance alone are
not yet sufficient to support the expenses of the Company. The Company's future
success will depend mainly on its ability to increase licenses of the Astea
Alliance Suite offerings, on developing new products and product enhancements to
complement its existing product offerings, on its ability to continue support
and maintenance revenues from DISPATCH-1, and on its ability to control its
operating expenses. Any failure of the Company's products to achieve or sustain
market acceptance, or of the Company to sustain its current position in the
Customer Relationship Management software market, would have a material adverse
effect on the Company's business and results of operations. There can be no
assurance that the Company will be able to increase demand for Astea Alliance,
obtain an acceptable level of support and maintenance revenues from DISPATCH-1,
or to lower its expenses, thereby avoiding future losses.
Need for Development of New Products.
The Company's future success will depend upon its ability to enhance
its current products and develop and introduce new products on a timely basis
that keep pace with technological developments, industry standards and the
increasingly sophisticated needs of its customers, including developments within
the client/server, thin-client and object-oriented computing environments. Such
developments may require, from time to time, substantial capital investments by
the Company in product development and testing. The Company intends to continue
its commitment to research and development and its efforts to develop new
products and product enhancements. There can be no assurance that the Company
will not experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products and product
enhancements; that new products and product enhancements will meet the
requirements of the marketplace and achieve market acceptance; or that the
Company's current or future products will conform to industry requirements.
Furthermore, reallocation of resources by the Company, such as the diversion of
research and development personnel to development of a particular feature for a
potential or existing customer, can delay new products and certain product
enhancements. Some of our customers adopted our software on an incremental
basis. These customers may not expand usage of our software on an
enterprise-wide basis or implement new software products introduced by the
Company. The failure of the software to perform to customer expectations or
otherwise to be deployed on an enterprise-wide basis could have a material
adverse effect on the Company's ability to collect revenues or to increase
revenues from new as well as existing customers. If the Company is unable to
develop and market new products or enhancements of existing products
successfully, the Company's ability to remain competitive in the industry will
be materially adversely effected.
Rapid Technological Change.
In this industry there is a continual emergence of new technologies and
continual change in customer requirements. Because of the rapid pace of
technological change in the application software industry, the Company's current
market position could be eroded rapidly by product advancements. In order to
remain competitive, the Company must introduce new products or product
enhancements that meet customers' requirements in a timely manner. If the
Company is unable to do this, it may lose current and prospective customers to
competitors.
The Company's application environment relies primarily on software
development tools from Microsoft Corporation and PowerSoft Corporation, a
subsidiary of Sybase, Inc., in the case of Astea Alliance, and Progress Software
Corporation, in the case of DISPATCH-1. If alternative software development
tools were to be designed and generally accepted by the marketplace, we could be
at a competitive disadvantage relative to companies employing such alternative
developmental tools.
26
Burdens of Customization.
Certain of the Company's clients request customization of DISPATCH-1 or
Astea Alliance products to address unique characteristics of their businesses or
computing environments. In these situations, the Company applies contract
accounting to determine the recognition of license revenues. The Company's
commitment to customization could place a burden on its client support resources
or delay the delivery or installation of products which, in turn, could
materially adversely affect its relationship with significant clients or
otherwise adversely affect business and results of operations. In addition, the
Company could incur penalties or reductions in revenues for failures to develop
or timely deliver new products or product enhancements under development
agreements and other arrangements with customers. If customers are not able to
customize or deploy the Company's products successfully, the customer may not
complete expected product deployment, which would prevent recognition of
revenues and collection of amounts due, and could result in claims against the
Company.
Risk of Product Defects; Failure to Meet Performance Criteria.
The Company's software is intended for use in enterprise-wide
applications that may be critical to its customer's business. As a result,
customers and potential customer typically demand strict requirements for
installation and deployment. The Company's software products are complex and may
contain undetected errors or failures, particularly when software must be
customized for a particular customer, when first introduced or when new versions
are released. Although the Company conducts extensive product testing during
product development, the Company has at times delayed commercial release of
software until problems were corrected and, in some cases, has provided
enhancements to correct errors in released software. The Company could, in the
future, lose revenues as a result of software errors or defects. Despite testing
by the Company and by current and potential customers, errors in the software,
customizations or releases might not be detected until after initiating
commercial shipments, which could result in additional costs, delays, possible
damage to the Company's reputation and could cause diminished demand for the
Company's products. This could lead to customer dissatisfaction and reduce the
opportunity to renew maintenance contracts or sell new licenses.
Continued Dependence on Large Contracts May Result in Lengthy Sales and
Implementation Cycles and Impact Revenue Recognition and Cash Flow.
The sale and implementation of the Company's products generally involve
a significant commitment of resources by prospective customers. As a result, the
Company's sales process often is subject to delays associated with lengthy
approval processes attendant to significant capital expenditures, definition of
special customer implementation requirements, and extensive contract
negotiations with the customer. Therefore, the sales cycle varies substantially
from customer to customer and typically lasts between four and nine months.
During this time the Company may devote significant time and resources to a
prospective customer, including costs associated with multiple site visits,
product demonstrations and feasibility studies. The Company may experience a
number of significant delays over which the Company has no control. Because the
costs associated with the sale of the product are fixed in current periods,
timing differences between incurring costs and recognizing of revenue associated
with a particular project may result. Moreover, in the event of any downturn in
any existing or potential customer's business or the economy in general,
purchases of the Company's products may be deferred or canceled.
Furthermore, the implementation of the Company's products typically
takes several months of integration of the product with the customer's other
existing systems and customer training. A successful implementation requires a
close working relationship between the customer and members of the Company's
professional service organization. These issues make it difficult to predict the
quarter in which expected orders will occur. Delays in implementation of
products could cause some or all of the revenues from those
27
licenses to be shifted from the expected quarter to a subsequent quarter or
quarters. In these situations, the Company applies contract accounting to
determine the recognition of license revenue.
When the Company has provided consulting services to implement certain
larger projects, some customers have in the past delayed payment of a portion of
license fees until implementation was complete and in some cases have disputed
the consulting fees charged for implementation. There can be no assurance the
Company will not experience additional delays or disputes regarding payment in
the future, particularly if the Company receives orders for large, complex
installations. Additionally, as a result of the application of the revenue
recognition rules applicable to the Company's licenses under generally accepted
accounting principles, license revenues may be recognized in periods after those
in which the respective licenses were signed. The Company believes that
period-to-period comparisons of its results of operations should not be relied
upon as any indication of future performance.
Fluctuations in Quarterly Operating Results May Be Significant.
The Company's quarterly operating results have in the past and may in
the future vary or decrease significantly depending on factors such as:
o Revenue from software sales;
o The timing of new product releases;
o Market acceptance of new and enhanced versions of the Company's
products;
o Customer order deferrals in anticipation of enhancements or new
products;
o the size and timing of significant orders, the recognition of
revenue from such orders;
o changes in pricing policies by the Company and its competitors;
o the introduction of alternative technologies;
o changes in operating expenses;
o changes in the Company's strategy;
o personnel changes;
o the effect of potential acquisitions by the Company and its
competitors; and general domestic and international economic and
political factors.
The Company has limited or no control over many of these factors. Due
to all these factors, it is possible that in some future quarter the Company's
operating results will be materially adversely affected.
Fluctuations in Quarterly Operating Results due to Seasonal Factors.
The Company expects to experience fluctuations in the sale of licenses
for its products due to seasonal factors. The Company has experienced and
anticipates that it will continue to experience relatively lower sales in the
first fiscal quarter due to patterns in capital budgeting and purchasing cycles
of current and prospective customers. The Company also expects that sales may
decline during the summer months of its third quarter, particularly in the
European markets. Moreover, the Company generally records most of its total
quarterly license revenues in the third month of the quarter, with a
concentration of these revenues in the last half of that third month. This
concentration of license revenues is influenced by customer tendencies to make
significant capital expenditures at the end of a fiscal quarter. The Company
expects these revenue patterns to continue for the foreseeable future. Thus, its
results of operations may vary seasonally in accordance with licensing activity,
and will also depend upon recognition of revenue from such licenses from time to
time. The Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as an
indication of future performance.
28
General Economic Conditions May Affect Operations.
As business has grown, the Company has become increasingly subject to
the risks arising from adverse changes in domestic and global economic
conditions. Because of the recent economic slowdown in the United States and in
other parts of the world, many companies are delaying or reducing technology
purchases and investments. Similarly, the Company's customers may delay payment
for Company products causing accounts receivable to increase. In addition,
terrorist attacks could further contribute to the slowdown in the economies of
North America, Europe and Asia. The overall impact to the Company of this
slowdown is difficult to predict, however, revenues could decline, which would
have an adverse effect on the Company's results of operations and on its
financial condition, as well as on its ability to sustain profitability.
Competition in the Customer Relationship Management Software Market is Intense.
The Company competes in the CRM software market. This market is highly
competitive and the Company expects competition in the market to increase. The
Company's competitors include large public companies such as Oracle, PeopleSoft
and Siebel, as well as traditional enterprise resource planning (ERP) software
providers such as SAP that are developing CRM capabilities. In addition, a
number of smaller privately held companies generally focus only on discrete
areas of the CRM software marketplace. Because the barriers to entry in the CRM
software market are relatively low, new competitors may emerge with products
that are superior to the Company's products or that achieve greater market
acceptance. Moreover, the CRM industry is currently experiencing significant
consolidation, as larger public companies seek to enter the CRM market through
acquisitions or establish other cooperative relationships among themselves,
thereby enhancing their ability to compete in this market with their combined
resources. Some of the Company's existing and potential competitors have greater
financial, technical, marketing and distribution resources than the Company.
These and other competitors pose business risks to the Company because:
o they compete for the same customers that the Company tries to
attract;
o if the Company loses customers to its competitors, it may be
difficult or impossible to win them back;
o lower prices and a smaller market share could limit the Company's
revenue generating ability, reduce its gross margins and restrict
its ability to become profitable or sustain profitability; and
o competitors may be able to devote greater resources to more
quickly respond to emerging technologies and changes in customer
requirements or to the development, promotion and sales of their
products.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not adversely affect its business and results of operations.
Risk of Dependence on Proprietary Technology.
The Company depends heavily on proprietary technology for its business
to succeed. The Company licenses its products to customers under license
agreements containing, among other terms, provisions protecting against the
unauthorized use, copying and transfer of the licensed program. In addition, the
Company relies on a combination of trade secrets, copyright and trademark laws
and confidentiality procedures to protect the Company's proprietary rights in
its products and technology. The legal protection is limited, however.
Unauthorized parties may copy aspects of the Company's products and obtain and
use information that the Company believes is proprietary. Other parties may
breach confidentiality agreements or other contracts they have made with the
Company. Policing unauthorized use of the Company's software is difficult and,
while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. There can be no assurance that any of the
29
measures taken by the Company will be adequate to protect its proprietary
technology or that its competitors will not independently develop technologies
that are substantially equivalent or superior to the Company's technologies. If
the Company fails to successfully enforce its proprietary technology, its
competitive position may be harmed.
Other software providers could develop similar technology
independently, which may infringe on the Company's proprietary rights. The
Company may not be able to detect infringement and may lose a competitive
position in the market before it does so. In addition, competitors may design
around the Company's technology or develop competing technologies. The laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. Litigation may be necessary to
enforce the Company's proprietary rights. Such litigation is time-consuming, has
an uncertain outcome and could result in substantial costs and diversion of
management's attention and resources. However, if the Company fails to
successfully enforce its proprietary rights, the Company's competitive position
may be harmed.
Possible Infringement of Third Party Intellectual Property Rights.
Substantial litigation and threats of litigation regarding intellectual
property rights are common in this industry. The Company is not aware that its
products and technologies employ technology that infringes any valid, existing
proprietary rights of third parties. While there currently are no pending
lawsuits against the Company regarding infringement of any existing patents or
other intellectual property rights or any notices that it is infringing the
intellectual property rights of others, third parties may assert such claims in
the future. Any claims, with or without merit, could:
o be time consuming to defend;
o result in costly litigation or damage awards;
o divert management's attention and resources;
o cause product shipment delays; or
o require the Company to seek to enter into royalty or licensing
agreements, which may not be available on terms acceptable to the
Company, if at all.
A successful claim of intellectual property infringement against the
Company or the Company's failure or inability to license the infringed or
similar technology could seriously harm its business because the Company would
not be able to sell the impacted product without exposing itself to litigation
risk and damages. Furthermore, redevelopment of the product so as to avoid
infringement could cause the Company to incur significant additional expense and
delay.
Dependence on Technology from Third Parties.
The Company integrates various third-party software products as
components of its software. The Company's business would be disrupted if this
software, or functional equivalents of this software, were either no longer
available to the Company or no longer offered to the Company on commercially
reasonable terms. In either case, the Company would be required to either
redesign its software to function with alternate third-party software or develop
these components itself, which would result in increased costs and could result
in delays in software shipments. Furthermore, the Company might be forced to
limit the features available in its current or future software offerings.
Need to Expand Indirect Sales.
The Company has historically sold its products through its direct sales
force and a limited number of distributors (value-added resellers, system
integrators and sales agents). The Company's ability to achieve significant
revenue growth in the future will depend in large part on its success in
establishing relationships
30
with distributors and OEM partners. The Company is currently investing, and
plans to continue to invest, significant resources to expand its domestic and
international direct sales force and develop distribution relationships. The
Company's distributors also sell or can potentially sell products offered by the
Company's competitors. There can be no assurance that the Company will be able
to retain or attract a sufficient number of its existing or future third party
distribution partners or that such partners will recommend, or continue to
recommend, the Company's products. The inability to establish or maintain
successful relationships with distributors and OEM partners or to train its
direct sales force could cause its sales to decline.
Risks of Future Acquisitions.
As part of Astea's growth strategy, it may pursue the acquisition of
businesses, technologies or products that are complementary to its business.
Acquisitions involve a number of special risks that could harm the Company's
business, including the diversion of management's attention, the integration of
the operations and personnel of the acquired companies, and the potential loss
of key employees. In particular, the failure to maintain adequate operating and
financial control systems or unexpected difficulties encountered during
expansion could harm the Company's business. Acquisitions may result in
potentially dilutive issuances of equity securities, and the incurrence of debt
and contingent liabilities, any of which could materially adversely affect the
Company's business and results of operations.
Risks Associated with International Sales.
Astea's international sales accounted for 31% of the Company's revenues
in 2002, 33% in 2001, and 41% in 2000. The Company expects that international
sales will continue to be a significant component of its business. In the
Company's efforts to expand its international presence, it will face certain
risks which it may not be successful in addressing. These risks include:
o difficulties in establishing and managing international
distribution channels and in translating products into foreign
languages;
o difficulties finding staff to manage foreign operations and
collect accounts receivable;
o difficulties enforcing intellectual property rights;
o liabilities and financial exposure under foreign laws and
regulatory requirements;
o fluctuations in the value of foreign currencies and currency
exchange rates; and
o potentially adverse tax consequences.
Additionally, the current economic difficulties in several Asian countries could
have an adverse impact on the Company's international operations in future
periods. Moreover, the currency unification in Europe may change the market for
the Company's business software. Any of these factors, if not successfully
addressed, could harm the Company's operating results.
Research and Development in Israel; Risks of Potential Political, Economic or
Military Instability.
Astea's principal research and development facilities are located in
Israel. Accordingly, political, economic and military conditions in Israel may
directly affect its business. Continued political and economic instability or
armed conflicts in Israel or in the region could directly harm the Company's
business and operations.
Since the establishment of the State of Israel in 1948, a number of
armed conflicts have taken place between Israel and its Arab neighbors, and a
state of hostility has existed in varying degrees and intensity. This state of
hostility has led to security and economic problems for Israel. The future of
peace efforts between Israel and its Arab neighbors, particularly in light of
the recent violence and political unrest in Israel and the rest of the Middle
East, remains uncertain and several countries still restrict business with
Israel
31
and Israeli companies. These restrictive laws and policies may also materially
harm the Company's operating results and financial condition.
Dependence on Key Personnel that are Required to Perform Military Service.
Many of the Company's employees in Israel are obligated to perform
annual military reserve duty in the Israeli army and are subject to being called
to active duty at any time, which could adversely affect the Company's ability
to pursue its planned research and development efforts. The Company cannot
assess the full impact of these requirements on its workforce or business and
the Company cannot predict the effect of any expansion or reduction of these
obligations. However, in light of the recent violence and political unrest in
Israel, there is an increased risk that a number of the Company's employees
could be called to active military duty without prior notice. The Company's
operations could be disrupted by the absence for a significant period of time of
one or more of our key employees or a significant number of other employees due
to military service. Any such disruption in the Company's operations could harm
its operations.
Risks Associated with Inflation and Currency Fluctuations.
The Company generates most of its revenues in U.S. dollars but a
portion of its costs associated with the Israeli operations is in New Israeli
Shekels, or NIS. The Company also pays some of its international-based sales and
support staff in local currencies, such as the British pound sterling. As a
result, the Company is exposed to risks to the extent that the rate of inflation
in Israel or in the U.K. exceeds the rate of devaluation of the NIS or the
British pound sterling in relation to the U.S. dollar or if the timing of such
devaluations lags behind inflation in Israel or in the U.K. In that event, the
cost of the Company's operations in Israel and the U.K. measured in terms of
U.S. dollars will increase and the U.S. dollar-measured results of operations
will suffer. Historically, Israel has experienced periods of high inflation. The
Company's results of operations also could be harmed if it is unable to guard
against currency fluctuations in Israel, the U.K. or other countries in which
the Company may employ sales or support staff in the future.
Dependence on Key Personnel; Competition for Employees.
The continued growth and success largely depends on the managerial and
technical skills of key technical, sales and management personnel. In
particular, the Company's business and operations are substantially dependent of
the performance of Zack B. Bergreen, the founder and chief executive officer. If
Mr. Bergreen were to leave or become unable to perform services for the Company,
the business would likely be harmed. The Company's success also depends, to a
substantial degree, upon its continuing ability to attract, motivate and retain
other talented and highly qualified personnel. Competition for key personnel is
intense, particularly so in recent years. From time to time the Company has
experienced difficulty in recruiting and retaining talented and qualified
employees. There can be no assurance that the Company can retain its key
technical, sales and managerial employees or that it can attract, assimilate or
retain other highly qualified technical, sales and managerial personnel in the
future. If the Company fails to attract or retain enough skilled personnel, its
product development efforts may be delayed, the quality of its customer service
may decline and sales may decline.
Concentration of Ownership.
Currently, Zack B. Bergreen, the Company's chief executive officer,
beneficially owns approximately 47% of the outstanding Common Stock of the
Company. As a result, Mr. Bergreen exercises significant control over the
Company through his ability to influence and control the election of directors
and all other matters that require action by the Company's stockholders. Under
certain circumstances, Mr. Bergreen could prevent or delay a change of control
of the Company which may be favored by a significant portion of the Company's
other stockholders, or cause a change of control not favored by the majority of
the
32
Company's other stockholders. Mr. Bergreen's ability under certain circumstances
to influence, cause or delay a change in control of the Company also may have an
adverse effect on the market price of the Company's Common Stock.
Possible Volatility of Stock Price.
The market price of the Common Stock has in the past been, and may
continue to be, subject to significant fluctuations in response to, and may be
adversely affected by, variations in quarterly operating results, changes in
earnings estimates by analysts, developments in the software industry, and
adverse earnings or other financial announcements of the Company's customers as
well as other factors. In addition, the stock market can experience extreme
price and volume fluctuations from time to time which may bear no meaningful
relationship to the Company's performance. Broad market fluctuations, as well as
economic conditions generally and in the software industry specifically, may
result in material adverse effects on the market price of the Company's common
stock.
Limitations of the Company Charter Documents.
The Company's Certificate of Incorporation and By-Laws contain
provisions that could discourage a proxy contest or make more difficult the
acquisition of a substantial block of the Company's common stock, including
provisions that allow the Board of Directors to take into account a number of
non-economic factors, such as the social, legal and other effects upon
employees, suppliers, customers and creditors, when evaluating offers for the
Company's acquisition. Such provisions could limit the price that investors
might be willing to pay in the future for the Company's shares of common stock.
The Board of Directors is authorized to issue, without stockholder approval, up
to 5,000,000 shares of preferred stock with voting, conversion and other rights
and preferences that may be superior to the Company's common stock and that
could adversely affect the voting power or other rights of our holders of common
stock. The issuance of preferred stock or of rights to purchase preferred stock
could be used to discourage an unsolicited acquisition proposal.
Nasdaq SmallCap Market Compliance Requirements.
The Company's common stock trades on The Nasdaq SmallCap Market, which
has certain compliance requirements for continued listing of common stock,
including a series of financial tests relating to shareholder equity, public
float, number of market makers and shareholders, and maintaining a minimum bid
price per share for the Company's common stock. The result of delisting from The
Nasdaq SmallCap Market could be a reduction in the liquidity of any investment
in the Company's common stock and a material adverse effect on the price of its
common stock. Delisting could reduce the ability of holders of the Company's
common stock to purchase or sell shares as quickly and as inexpensively as they
could have done in the past. This lack of liquidity would make it more difficult
for the Company to raise capital in the future. Although the Company is working
to comply with all continued listing requirements of Nasdaq SmallCap, there can
be no assurance that the Company will be able to satisfy such requirements.
Our common stock must maintain a minimum bid price of $1.00 per share
in order to remain eligible for continued listing on The Nasdaq SmallCap Market.
On October 25, 2002, the staff of The Nasdaq Stock Market, Inc. notified us that
we were not in compliance with the minimum bid price requirement. The staff
advised us that we would be given until April 21, 2003 within which to comply
with the minimum bid price requirement in order to maintain our listing on The
Nasdaq SmallCap Market. Nasdaq has proposed extending the grace period one
additional year for all companies in this situation and we expect the SEC to
approve the blanket extension. If we fail to meet the continued listing
standards by the time this additional grace period terminates on April 21, 2004,
our common stock would be delisted from the Nasdaq SmallCap Market. This would
likely have an adverse impact on the trading price and liquidity of our common
stock. If our common stock were to be delisted, trading, if any, in the common
stock may continue to be conducted on
33
the OTC Bulletin Board upon application by the requisite market makers. It is
possible, however, that Nasdaq will revise the applicable rules to provide an
extended grace period.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment portfolio. The Company does not
have any derivative financial instruments in its portfolio. The Company places
its investments in instruments that meet high credit quality standards. The
Company is adverse to principal loss and ensures the safety and preservation of
its invested funds by limiting default risk, market risk and reinvestment risk.
The Company is currently in the process of revamping its investment portfolio.
As a result, as of December 31, 2002, the Company's investments consisted of
commercial paper. The Company does not expect any material loss with respect to
its investment portfolio.
Foreign Currency Risk
The Company does not use foreign currency forward exchange contracts or
purchased currency options to hedge local currency cash flows or for trading
purposes. All sales arrangements with international customers are denominated in
foreign currency. The Company does not expect any material loss with respect to
foreign currency risk.
The Company has reviewed the impact of its subsidiaries dominated in
German deutsche marks, French francs and the Dutch guilder converting into the
Euro beginning January 1, 2002. This conversion has had no material impact on
its systems related to the Company's business activities and financial
reporting. The Company is not aware of any circumstances indicating that the
introduction of the Euro caused or will cause material misstatements in the
Company's accounting records or adversely affects business operations in the
future.
34
Item 8. Financial Statements and Supplementary Data.
Report of Independent Certified Public Accountants
Board of Directors
Astea International Inc. and Subsidiaries
Horsham, Pennsylvania
We have audited the accompanying consolidated balance sheets of Astea
International Inc. and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements of Astea International Inc. and subsidiaries as of December 31, 2000,
and for the year then ended were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those financial
statements in their report dated March 10, 2001.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Astea International
Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
\s\BDO Seidman, LLP
-------------------
BDO Seidman, LLP
Philadelphia, PA
February 21, 2003
35
This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with Astea International Inc.'s filing on Form 10-K for the year
ended December 31, 2000. This audit report has not been reissued by Arthur
Andersen LLP in connection with this filing on Form 10-K, as Arthur Andersen LLP
ceased providing audit services as of August 31, 2002. The consolidated balance
sheet as of December 31, 2000 referred to in this report have not been included
in the accompanying financial statements.
To Astea International Inc.:
We have audited the accompanying consolidated balance sheet of Astea
International Inc. (a Delaware corporation) and subsidiaries as of December 31,
2000, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended December 31,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Astea
International Inc. and subsidiaries as of December 31, 2000, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
\s\Arthur Andersen LLP
----------------------
Arthur Andersen LLP
Philadelphia, PA
March 10, 2001
36
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 2001
----------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,967,000 $ 4,071,000
Investments available for sale - 2,987,000
Restricted cash 300,000 -
Receivables, net of reserves of $1,018,000 and $955,000 7,936,000 7,343,000
Prepaid expenses and other 691,000 822,000
--------------------------------------
Total current assets 13,894,000 15,223,000
Property and equipment, net 586,000 617,000
Capitalized software development costs, net 1,349,000 1,412,000
Other assets 614,000 763,000
--------------------------------------
Total assets $ 16,443,000 $ 18,015,000
======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $ 34,000
Accounts payable and accrued expenses 3,418,000 3,627,000
Deferred revenues 4,027,000 4,249,000
--------------------------------------
Total current liabilities 7,445,000 7,910,000
Commitments and Contingencies (Note 12)
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued
- -
Common stock, $.01 par value, 25,000,000 shares
authorized, 14,825,000 shares issued 148,000 148,000
Additional paid-in capital 22,674,000 22,674,000
Accumulated comprehensive loss -
translation adjustment (1,039,000) (1,256,000)
Accumulated deficit (12,568,000) (11,239,000)
Less: Treasury stock at cost, 221,000 and 227,000
shares (217,000) (222,000)
--------------------------------------
Total stockholders' equity 8,998,000 10,105,000
--------------------------------------
Total liabilities and stockholders' equity $ 16,443,000 $ 18,015,000
======================================
See accompanying notes to the consolidated financial statements.
37
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------
Revenues:
Software license fees $ 6,504,000 $ 6,384,000 $ 6,554,000
Services and maintenance 10,294,000 10,973,000 13,763,000
------------------------------------------------
Total revenues 16,798,000 17,357,000 20,317,000
------------------------------------------------
Costs and expenses:
Cost of software license fees 1,262,000 1,224,000 1,199,000
Cost of services and maintenance 6,345,000 6,808,000 10,928,000
Product development 1,781,000 2,590,000 2,744,000
Sales and marketing 6,218,000 5,396,000 6,857,000
General and administrative 2,426,000 2,837,000 4,066,000
Restructuring charges - 333,000 1,101,000
------------------------------------------------
Total costs and expenses 18,032,000 19,188,000 26,895,000
------------------------------------------------
Loss from operations before interest and taxes (1,234,000) (1,831,000) (6,578,000)
Interest income 112,000 318,000 1,512,000
Interest expense (6,000) (9,000) (16,000)
------------------------------------------------
Loss from continuing operations before income taxes (1,128,000) (1,522,000) (5,082,000)
Income tax expense 200,000 - -
------------------------------------------------
Loss from continuing operations (1,328,000) (1,522,000) (5,082,000)
Gain on sale of discontinued operations, net of taxes - - 293,000
------------------------------------------------
Net loss (1,328,000) $ (1,522,000) $(4,789,000)
================================================
Basic and diluted net loss per share:
Continuing operations $ (0.09) $ (0.10) $ (0.35)
Gain on sale of discontinued operations - - .02
------------------------------------------------
Net loss $ (0.09) $ (0.10) $ (0.33)
================================================
Weighted average shares used in computing basic net
loss per share 14,603,000 14,631,000 14,570,000
================================================
Weighted average shares used in computing diluted net
loss per share 14,620,000 14,631,000 14,570,000
================================================
See accompanying notes to the consolidated financial statements.
38
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Accumulated Total
Common Paid-in ComprehensiveAccumulated Treasury Stockholders' Comprehensive
Stock Capital Loss Deficit Stock Equity Loss
----- ------- ---- ------- ----- ------ ----
Balance, January 1, 2000 $141,000 $ 52,242,000 $ (839,000) $(4,927,000) $ - $ 46,617,000
Exercise of stock options 6,000 998,000 - - - 1,004,000
Issuance of common stock
under 1,000 22,000 - - - 23,000
employee stock purchase
plan
Stock issued to Board of Directors
in lieu of cash payment - 9,000 - - 9,000
Variable stock option - (224,000) - - (224,000)
benefit
Cash dividend to stockholders - (30,376,000) - - $(30,376,000)
Accumulated comprehensive loss - - (306,000) - (306,000) $ (306,000)
Purchases of treasury stock - - - (3,000) (3,000) -
Net loss - - (4,789,000) - (4,789,000) (4,789,000)
--------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $ 148,000 22,671,000 (1,145,000) (9,716,000) (3,000) $11,955,000 $ (5,095,000)
=================
Issuance of common stock
under employee stock purchase 3,000 (1,000) 4,000 6,000
plan
Purchases of treasury stock (223,000) (223,000)
Accumulated comprehensive loss (111,000) - (111,000) $ (111,000)
Net loss 1,522,000) - (1,522,000) (1,522,000)
--------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $ 148,000 22,674,000 (1,256,000) (11,239,000) (222,000) 10,105,000 $(1,633,000)
================
Issuance of common stock
under employee stock purchase
plan - - - (1,000) 5,000 4,000
Accumulated comprehensive - - - -
loss - - 217,000 - - 217,000 $ 217,000
Net loss - - - (1,328,000) (1,328,000) (1,328,000)
--------------------------------------------------------------------------------------------------
Balance, December 31, 2002 $ 148,000 $ 22,674,000 $ (1,039,000) $(12,568,000)$(217,000) $(8,998,000) $(1,111,000)
==================================================================================================
See accompanying notes to the consolidated financial statements.
39
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (1,328,000) $ (1,522,000) $ (4,789,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Compensation (benefit) charge in connection with
Variable stock options - - (224,000)
Gain on sale of discontinued business - - (149,000)
Loss on sale of investments - - 28,000
Depreciation and amortization 1,295,000 1,421,000 1,532,000
Officer's life insurance valuation 59,000 (763,000) -
Deferred income taxes 200,000 370,000 188,000
Other - - 9,000
Changes in operating assets and liabilities:
Receivables (294,000) 460,000 1,292,000
Prepaid expenses and other
125,000 976,000 (152,000)
Accounts payable and accrued expenses
186,000 (2,262,000) (1,522,000)
Accrued restructuring (385,000) 409,000 (775,000)
Deferred revenues (203,000) (268,000) 915,000
Other (110,000) - -
-------------------------------------------------
Net cash used in operating activities (455,000) (439,000) (4,387,000)
-------------------------------------------------
Cash flows from investing activities:
Net sales of investments available for sale 2,987,000 519,000 34,373,000
Purchases of property and equipment (404,000) (244,000) (716,000)
Capitalized software development costs (807,000) (600,000) (640,000)
Restricted cash (300,000) - -
-------------------------------------------------
Net cash provided by (used in) investing activities 1,476,000 (325,000) 33,017,000
-------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options and
employee stock purchase plan 4,000 6,000 1,027,000
Cash dividend to stockholders - - (30,376,000)
Net repayments of long-term debt (34,000) (126,000) (298,000)
Purchases of treasury stock - (223,000) (3,000)
-------------------------------------------------
Net cash used in financing activities (30,000) (343,000) (29,650,000)
-------------------------------------------------
Effect of exchange rate changes on cash and cash
equivalents (95,000) (30,000) 70,000
-------------------------------------------------
Net increase (decrease) in cash and cash equivalents 896,000 (1,137,000) (950,000)
Cash and cash equivalents balance, beginning of year
4,071,000 5,208,000 6,158,000
-------------------------------------------------
Cash and cash equivalents balance, end of year $4,967,000 $ 4,071,000 $ 5,208,000
=================================================
Supplemental disclosure of cash flow information:
Cash paid for interest expense= $ 6,000 $ 9,000 $ 16,000
=================================================
See accompanying notes to the consolidated financial statements.
40
ASTEA INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Company Background
Astea International Inc. and Subsidiaries (collectively the "Company"
or "Astea") develops, markets, and supports front-office solutions for the
Customer Relationship Management ("CRM") software market. Astea's applications
are designed specifically for organizations for which field service and customer
support are considered mission critical aspects of business operations. Astea
solutions are used in industries such as information technology, medical devices
and diagnostic systems, industrial controls and instrumentation, retail systems,
office automation, imaging systems, facilities management, telecommunications
and other industries with equipment sales and service requirements.
The Company has incurred losses from continuing operations for the past
six years and has used available cash and cash equivalents to support its
operating activities. In addition, during 2000 the Company distributed $30.4
million of cash to its stockholders. Management believes that its current cash
and cash equivalents on hand and future operating cash flows will be sufficient
to fund operations for a reasonable period of time beyond 2003. To the extent
that future operating cash flows, revenues and decreased expenses are not
realized, the Company's results of operations and financial condition could be
materially and adversely affected, which may impact the Company's viability. The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Astea
International Inc. and its wholly owned subsidiaries and branches. All
significant intercompany accounts and transactions have been eliminated upon
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company licenses software under noncancelable perpetual license
agreements. License fee revenues are recognized when a noncancelable license
agreement is executed, the product has been shipped, the license fee is
determined to be fixed or determinable and collectibility is reasonably assured.
If the fee is not fixed or determinable, revenue is recognized as payments
become due from the customer. If collectibility is not considered probable,
revenue is recognized when the fee is collected. If the payment of the license
fee is coincident to services, which are deemed to be essential to the
functionality of the software, the license fee is deferred and recognized using
contract accounting over the period during which the services are performed. The
Company's software licensing agreements provide for
41
customer support that begins after the warranty period. The portion of the
license fee associated with customer support during the warranty period is
unbundled from the license fee and is recognized ratably over the warranty
period (generally 90 days) as maintenance revenue. The Company's revenue
recognition policy is in accordance with the American Institute of Certified
Public Accountants' Statement of Position No. 97-2, "Software Revenue
Recognition."
Services revenues, which include consulting, implementation and
training, are recognized as performed. Maintenance revenues are recognized
ratably over the terms of the maintenance agreements.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Investments Available for Sale
Pursuant to Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the Company
determines the appropriate classification of debt and equity securities at the
time of purchase and re-evaluates such designation as of each balance sheet
date. As of December 31, 2001, all short-term investments have been classified
as available-for-sale. Available-for-sale securities are carried at fair value,
based on quoted market prices, with unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity. As of December 31,
2001, unrealized losses and gains were not material to the financial statements.
Realized gains and losses, computed using specific identification, and declines
in value determined to be permanent are recognized in the consolidated
statements of operations. As of December 31, 2002, there were no investments
held available for sale.
Property and Equipment
Property and equipment are recorded at cost. Property and equipment
capitalized under capital leases are recorded at the present value of the
minimum lease payments due over the lease term. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives of
the related assets or the lease term, whichever is shorter. Gains and losses on
disposal are recognized in the year of the disposition. Expenditures for repairs
and maintenance are charged to expense as incurred and significant renewals and
betterments are capitalized.
The Company reviews the carrying values of its long-lived assets for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable based on undiscounted
estimated future operating cash flows. As of December 31, 2002, the Company has
determined that no impairment has occurred.
Capitalized Software Development Costs
The Company capitalizes software development costs in accordance with
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed." The Company capitalizes software development costs
subsequent to the establishment of technological feasibility through the
product's availability for general release. Costs incurred prior to the
establishment of technological feasibility are charged to product development
expense. Development costs associated with product enhancements that extend the
original product's life or significantly improve the original product's
marketability are also capitalized once technological feasibility has been
established. Software development costs are amortized on a product-by-product
basis over the greater of the ratio of current
42
revenues to total anticipated revenues or on a straight-line basis over the
estimated useful lives of the products (three to four years), beginning with the
initial release to customers. The Company continually evaluates whether events
or circumstances have occurred that indicate that the remaining useful life of
the capitalized software development costs should be revised or that the
remaining balance of such assets may not be recoverable. The Company evaluates
the recoverability of capitalized software based on the estimated future
revenues of each product. As of December 31, 2002, management believes that no
revisions to the remaining useful lives or write-downs of capitalized software
development costs are required.
Major Customers
In 2002 and 2000, the Company had no significant customers which
represented 10% of revenues. In 2001, the Company had one customer which
represented 11% of revenue.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to credit
risk consist of cash equivalents and accounts receivable. The Company's policy
is to limit the amount of credit exposure to any one financial institution and
place investments with financial institutions evaluated as being creditworthy,
or in short-term money market and tax-free bond funds which are exposed to
minimal interest rate and credit risk. Concentration of credit risk, with
respect to accounts receivable, is limited due to the Company's credit
evaluation process. The Company does not require collateral from its customers.
The Company's receivables consist principally of amounts due form companies that
sell and service equipment or sell and deliver professional services.
Historically, the Company has not incurred any significant credit-related
losses.
Fair Value of Financial Instruments
Due to the short term nature of these accounts, the carrying values of
cash, cash equivalents, investments available for sale, accounts receivable,
accounts payable and accrued expenses approximate the respective fair values.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement carrying amounts and the tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse.
Currency Translation
The accounts of the international subsidiaries and branch operations
are translated in accordance with SFAS No. 52, "Foreign Currency Translation,"
which requires that assets and liabilities of international operations be
translated using the exchange rate in effect at the balance sheet date. The
results of operations are translated at average exchange rates during the year.
The effects of exchange rate fluctuations in translating assets and liabilities
of international operations into U.S. dollars are accumulated and reflected as a
currency translation adjustment in the accompanying consolidated statements of
stockholders' equity. Transaction gains and losses are included in net loss.
There are no material transaction gains or losses in the accompanying
consolidated financial statements for the periods presented.
43
Net Income (Loss) Per Share
The Company presents earnings per share in accordance with SFAS No.
128, "Earnings per Share." Pursuant to SFAS No. 128, dual presentation of basic
and diluted earnings per share ("EPS") is required for companies with complex
capital structures on the face of the statements of operations. Basic EPS is
computed by dividing net income (loss) by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
from the exercise or conversion of securities into common stock. Options to
purchase 2,237,000, 1,588,000 and 1,129,000 shares of common stock with an
average exercise prices per share of $1.25 $1.72 and $2.64, were outstanding as
of December 31, 2002, 2001, and 2000, respectively, but were excluded from the
diluted loss per common share calculation as the inclusion of these options
would have been antidilutive.
Comprehensive Income (Loss)
The Company follows SFAS No. 130 "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for reporting and presentation of comprehensive
income (loss) and its components (revenues, expenses, gains and losses) in a
full set of general-purpose financial statements. This statement also requires
that all components of comprehensive income (loss) be displayed with the same
prominence as other financial statements. Comprehensive income (loss) consists
of net income (loss) and foreign currency translation adjustments. The effects
of SFAS No. 130 are presented in the accompanying Consolidated Statements of
Stockholders' Equity.
Stock Compensation
The Company accounts for options and the employee stock purchase plan
under the recognition and measurement principles of Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees." No stock-based
employee compensation cost is reflected in net income, as all options granted
under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. Had compensation cost for the
Company's stock options and employee stock purchase plan been determined
consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss and basic and diluted net loss per share would have been:
2002 2001 2000
------------------------------------------------------------
Net loss - as reported $ (1,328,000) $(1,522,000) $ (4,789,000)
Add: Stock based compensation
included in net income as reported,
net or related tax effects
- - -
Deduct stock based compensation
determined under fair value based
methods for all awards, net of
related tax effects (303,000) (386,000) (348,000)
------------------------------------------------------------
Net loss - pro forma $ (1,631,000) $(1,908,000) $ (5,137,000)
============================================================
Basic and diluted loss
per share - as reported $ (0.09) $ (0.10) $ (0.33)
Basic and diluted loss
per share - pro forma $ (0.11) $ (0.13) $ (0.35)
44
The weighted average fair value of those options granted during the
years ended December 31, 2002, 2001 and 2000 was estimated as $0.70, $0.71 and
$1.60, respectively. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions: risk-free interest rate of 4.19%, 5.45% and 6.35%
for 2002, 2001 and 2000 grants, respectively; an expected life of six years;
volatility of 147%, 85% and 85%; and a dividend yield of zero for 2002, 2001 and
2000 grants, respectively.
Reclassifications
Certain reclassifications of prior year amounts have been made to
conform to the current year presentation.
Earnings Per Share
Basic earnings (loss) per share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period. Diluted income per share is computed by dividing net income (loss) by
the sum of weighted average number of common shares outstanding and dilutive
common equivalent shares outstanding during the period. Common equivalent shares
consist of the shares issuable upon exercise of stock options using the treasury
stock method. The following table sets forth the computation of the denominator
for the calculation of basic and diluted loss per share:
2002 2001 2000
----------- ------------ -------------
Denominator (in thousands):
Denominator for basic loss per share -
weighted average shares outstanding 14,603 14,631 14,570
Stock Options 17 - -
----------- ------------ -------------
Denominator for diluted loss per share -
adjusted weighted average shares outstanding,
assuming exercise of common equivalent shares 14,620 14,631 14,570
=========== ============ =============
Recent Accounting Standards or Accounting Pronouncements
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others" ("Interpretation No. 45"). This
Interpretation elaborates on the existing disclosure requirements for most
guarantees, including loan guarantees such as standby letters of credit. It also
clarifies that at the time a company issues a guarantee, the company must
recognize an initial liability for the fair market value of the obligations it
assumes under that guarantee and must disclose that information in its interim
and annual financial statements. The initial recognition and measurement
provisions of Interpretation No. 45 apply on a prospective basis to guarantees
issued or modified after December 31, 2002. The adoption of Interpretation No.
45 is not expected to have a material impact on our consolidated results of
operations, financial position or cash flows.
Financial Interpretation Number (FIN) 46, Consolidation of Variable
Interest Entities, clarifies the application of Accounting Research Bulletin No.
51, "Consolidated Financial Statements," to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN 46 is
applicable immediately for variable interest entities
45
created after January 31, 2003. For variable interest entities created prior to
January 31, 2003, the provisions of FIN 46 are applicable no later than July 1,
2003. This Interpretation is not expected to have an effect on the consolidated
financial statements.
In August 2001, the FASB issued Statement No. 143, "Accounting for
Asset Retirement Obligations" ("SFAS 143"), which provides the accounting
requirements for retirement obligations associated with tangible long-lived
assets. SFAS 143 requires entities to record the fair value of the liability for
an asset retirement obligation in the period in which it is incurred and is
effective for our 2003 fiscal year. The adoption of SFAS 143 is not expected to
have a material impact on our consolidated results of operations, financial
position or cash flows.
In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This statement supersedes SFAS Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." This new pronouncement also amends Accounting Research Bulletin
(ARB) No. 51 "Consolidated Financial Statements," to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary. SFAS
144 requires that one accounting model be used for long-lived assets to be
disposed of by sale, whether previously held and used or newly acquired and also
broadens the presentation of discontinued operations to include more disposal
transactions. SFAS 144 is effective for fiscal years beginning after December
15, 2001 and interim periods within those fiscal years. Adoption of SFAS 144 on
January 1, 2002, did not have any impact on the Company's financial position,
cash flows or results of operations for the year ended December 31, 2002.
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"). The rescission of FASB No. 4, "Reporting Gains and
Losses from Extinguishment of Debt" applies to us. FASB No. 4 required that
gains and losses from extinguishment of debt that were included in the
determination of net income be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. SFAS 145 is effective
for our fiscal year beginning January 1, 2003. Effective January 1, 2003,
pursuant to SFAS 145, the losses on early extinguishment of debt, if any, will
be included in "Other expenses" in the Company's consolidated Statements of
Operations.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities: ("SFAS 146"), which addresses
financial accounting and reporting for costs associated with exit or disposal
activities, and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)" which
previously governed the accounting treatment for restructuring activities. SFAS
146 applies to costs associated with an exit activity that does not involve an
entity newly acquired in a business combination or with a disposal activity
covered by SFAS 144. Those costs include, but are not limited to, the following:
(1) termination benefits provided to current employees that are involuntarily
terminated under the terms of a benefit arrangement that, in substance, is not
an ongoing benefit arrangement or individual deferred-compensation contract, (2)
costs to terminate a contract that is not a capital lease, and (3) costs to
consolidate facilities or relocate employees. SFAS 146 does not apply to costs
associated with the retirement of long-lived assets covered by SFAS 143. SFAS
146 will be applied prospectively and is effective for exit or disposal
activities initiated after December 31, 2002. The Company does not expect the
adoption of SFAS 146 to materially impact its financial position, results of
financial position, results of operations, or cash flows.
46
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure, an amendment of FASB
Statement No. 123 ("SFAS 148"). SFAS 148 amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation. It also amends the
disclosure provisions of that Statement to require prominent disclosure about
the effects on reported net income of an entity's accounting policy decisions
with respect to stock-based employee compensation. Finally, this Statement
amends Accounting Principles Board ("APB") Opinion No. 28, Interim Financial
Reporting, to require disclosure about those effects in interim financial
information. SFAS 148 is effective for financial statements for fiscal years
ending after December 15, 2002. The Company plans to continue to use the
intrinsic valuation method for stock compensation.
In November 2001, the FASB issued EITF 01-14, "Income Statement
Characterization of Reimbursements Received for "Out-of-Pocket" Expenses
Incurred." The new guidance requires that billings for out-of-pocket expenses
that are reimbursed by the customer are to be included in revenues with the
corresponding expense included in cost of sales. EITF 01-14 is required to be
applied for fiscal years beginning after December 15, 2001. During fiscal years
2002, 2001 and 2000, the Company billed $273,000, $256,000 and $382,000,
respectively, of reimbursable expenses to customers. During 2002, the Company
adopted this new guidance and restated all prior periods presented to reflect
the appropriate reclassifications.
3. Discontinued Operations
In September, 1998, the Company sold one of its subsidiaries, Bendata,
Inc. Included in the accounting in the year of the sale were reserves for
additional expenses expected to be incurred. As expenses related to the sale
were paid, they were charged against the reserve. During 2000 it was determined
that all expenses related to the sale had been paid in full. As a result, there
was excess in the reserve of $91,000. This overaccrual was reversed in 2000 and
included in gain from discontinued operations.
On December 31, 1998, Astea completed the sale of Abalon AB, another of
its subsidiaries. Part of the sales proceeds was deposited into escrow to cover
costs expected to be incurred by the purchaser. In September 2000, the unused
balance of the escrow account, $144,000, was distributed and included in gain
from discontinued operations. In addition, excess reserves for expected expenses
related to the sale of $58,000 were also reversed in 2000 and included in the
gain from discontinued operations.
4. Restructuring and Other Charges
During the fourth quarter of 2001, the Company recorded a restructuring
charge of $409,000 in connection with severance costs to downsize the Company's
employment roles ($211,000) and eliminate excess office space ($198,000). For
the year ended December 31, 2002, the Company made payments of $386,000 related
to the 2001 restructuring plan, including severance payments of $194,000 and
lease terminations of $192,000. During the fourth quarter of 2002, the Company
evaluated its restructuring accrual based on the then current facts and
determined that $23,000 was not needed for the purposes of the 2001 plan and,
accordingly, the accrual was reversed. This reversal is included in the general
and administrative expense line item of the consolidated statement of
operations.
During the second quarter of 2000, the Company recorded a restructuring
charge of $1,101,000. In addition, $290,000 of unused reserves from the 1999
restructuring discussed below were reclassified to cover expected expenses of
the 2000 restructuring. These charges resulted from closing an office in the
U.S., reducing office space in other cities, contractual obligations on
operating leases and severance
47
costs related to the reduction of personnel. For the year ended December 31,
2000, the Company made payments of $1,269,000 related to the 2000 restructuring
plan, including lease terminations and buy-outs of $314,000, severance payments
of $944,000 and other costs of $11,000. During the fourth quarter of 2001, the
Company evaluated its restructuring accrual based on the then current facts and
determined that $76,000 was not needed for the purposes of the 2000 plan and,
accordingly, the accrual was reversed. During 2001, the Company made payments of
$46,000 related to the 2000 restructuring plan which satisfied outstanding
severance obligations.
5. Investments Available for Sale
December 31, 2002 2001
---------------------------------------------------------------------------------------
U.S. Government Agencies Securities $ - $ 1,989,000
Corporate and Municipal Bonds - 998,000
-------------------------------
$ - $ 2,987,000
===============================
All investments available for sale had maturities of less than twelve
months from the respective balance sheet date. Losses on sales of securities for
the years ended December 31, 2002, 2001 and 2000 were zero, zero and $28,000,
respectively.
6. Receivables
December 31, 2002 2001
---------------------------------------------------------------------------------
Billed receivables $ 5,701,000 $ 4,663,000
Unbilled receivables 2,235,000 2,680,000
-----------------------------------
$ 7,936,000 $ 7,343,000
===================================
Billed receivables represent billings for the Company's products and
services to end users and value added resellers. Billed and unbilled receivables
are shown net of reserves for estimated uncollectible amounts. Unbilled
receivables represent contractual amounts due within one year under software
licenses, which are not yet billable.
For the years ended December 31, 2002, 2001 and 2000, the Company
recorded bad debt expense of $255,000, $648,000, and $889,000 and write-offs of
$470,000, $1,293,000 and $336,000.
7. Property and Equipment
December 31,
Useful Life 2002 2001
----------- ---- ----
Computers and related
equipment 3 $ 2,575,000 $ 3,323,000
Furniture and fixtures 10 471,000 469,000
Equipment under capital leases 3 988,000 988,000
Leasehold improvements Lease term 111,000 112,000
Office equipment 3-7 633,000 428,000
----------------------------------
4,778,000 5,320,000
Less: Accumulated
depreciation and amortization (4,192,000) (4,703,000)
----------------------------------
$ 586,000 $ 617,000
===================================
48
Depreciation and amortization expense for the years ended December 31,
2002, 2001 and 2000 was $425,000, $769,000 and $732,000, respectively.
Equipment under capital leases includes telephone systems, computers
and related equipment. Title to the property is owned by the financing
companies. The gross book value of equipment under capital lease is $988,000 as
of December 31, 2002 and 2001. Accumulated amortization on equipment under
capital lease as of December 31, 2002 and 2001 was $969,000 and $925,000,
respectively.
8. Capitalized Software Development Costs
December 31, 2002 2001
------------------------------------------------------------------------------------------
Capitalized software development costs $ 4,505,000 $ 3,698,000
Less: Accumulated amortization (3,156,000) (2,286,000)
----------------------------------------
$ 1,349,000 $ 1,412,000
========================================
The Company capitalized software development costs for the years ended
December 31, 2002, 2001 and 2000 of $807,000, $600,000 and $640,000,
respectively. Amortization of software development costs for the years ended
December 31, 2002, 2001 and 2000 was $870,000, $800,000 and $800,000,
respectively.
9. Other Assets
December 31, 2002 2001
------------------------------------------------------------------------------------------
Cash surrender value of life insurance
policies $ 574,000 $ 563,000
Deferred tax asset - 200,000
Security deposit 40,000 -
========================================
$ 614,000 $ 763,000
========================================
10. Accounts Payable and Accrued Expenses
December 31, 2002 2001
------------------------------------------------------------------------------------------
Accounts payable $ 926,000 $ 1,023,000
Accrued compensation and related benefits 1,494,000 1,223,000
Income taxes payable 146,000 70,000
Accrued professional services 175,000 101,000
Other accrued liabilities 677,000 801,000
----------------------------------------
$ 3,418,000 $ 3,627,000
========================================
49
11. Income Taxes
The provision (benefit) for income taxes is as follows:
Years ended December 31, 2002 2001 2000
--------------------------------------------------------------------------
Current:
Federal $ - $(170,000) $ (188,000)
State - - -
Foreign - - -
---------------------------------------------------------
- (170,000) (188,000)
Deferred:
Federal 200,000 170,000 188,000
---------------------------------------------------------
200,000 - -
=========================================================
Continuing Operations $ 200,000 $ - $(100,000)
Discontinued Operations:
Income from discontinued
operations - - -
Gain on sale of discontinued
operations - - 100,000
---------------------------------------------------------
$ 200,000 $ - $ -
=========================================================
The approximate income tax effect of each type of temporary difference is as
follows:
December 31, 2002 2001
-------------------------------------------------------------------
Deferred income tax assets:
Revenue recognition $ 27,000 $ 23,000
Accruals and reserves not
currently deductible for tax 461,000 487,000
Benefit of net operating loss carryforward 3,693,000 3,367,000
Depreciation 119,000 174,000
Alternative minimum tax 370,000 370,000
Capital loss carryforward 10,000 10,000
------------------------------------
4,680,000 4,431,000
Deferred income tax liabilities:
Capitalized software development costs (499,000) (523,000)
------------------------------------
4,181,000 3,908,000
Valuation reserve (4,181,000) (3,708,000)
------------------------------------
Net deferred income tax asset $ - $ 200,000
====================================
In 2002, the Company has provided a valuation allowance for all of its
net deferred tax asset based on an assessment of what portion of the asset is
more likely than not to be realized. The amount of the deferred tax considered
realizable as of December 31, 2001 relates to a portion of alternative minimum
tax credits, which have an indefinite carryforward period.
In the yer ended December 31, 2001 and 2000, there was no income taxes
due to the Company's loss position. During 2002, the Company wrote off the
balance of its deferred tax asset of $200,000.
50
The Company has a tax holiday in Israel which expires in 2005. The net
impact on 2002, 2001 and 2000 of the tax holiday was a decrease in net loss and
net loss per share by $100,193, $172,938 and $38,916, and $0.01, $0.01 and zero,
respectively.
As of December 31, 2002, the Company had a net operating loss
carryforward for United States federal income tax purposes of approximately
$18,600,000. Included in the aggregate net operating loss carryforward is
$7,761,000 of tax deductions related to equity transactions, the benefit of
which will be credited to stockholders' equity, if and when realized after the
other tax deductions in the carryforwards have been realized. The net operating
loss carryforward begins to expire in 2016.
The Company does not provide for federal income taxes or tax benefits
on the undistributed earnings or losses of its international subsidiaries
because earnings are reinvested and, in the opinion of management, will continue
to be reinvested indefinitely. At December 31, 2002, the Company had not
provided federal income taxes on cumulative earnings of individual international
subsidiaries of $1,300,000 ($278,000 earned during 2002). Should these earnings
be distributed in the form of dividends or otherwise, the Company would be
subject to both U.S. income taxes and withholding taxes in various international
jurisdictions. Determination of the related amount of unrecognized deferred U.S.
income tax liability is not practicable because of the complexities associated
with its hypothetical calculation. As noted above, the Company has significant
net operating loss carryforwards for U.S. federal income taxes purposes which
are available to offset the potential tax liability if the earnings were to be
distributed.
12. Commitments and Contingencies
The Company leases facilities and equipment under noncancelable
operating leases. Rent expense under all operating leases for the years ended
December 31, 2002, 2001 and 2000 was $970,000, $1,002,000 and $1,396,000,
respectively.
Future minimum lease payments under the Company's leases as of
December 31, 2002 are as follows:
Operating Leases
----------------
2003 $ 782,000
2004 770,000
2005 555,000
2006 465,000
2007 469,000
Thereafter 972,000
----------------------------
Total minimum lease payments $ 4,013,000
============================
On September 11, 2002, $300,000 of cash was pledged as collateral on an
outstanding letter of credit related to a lease obligation and was classified as
restricted cash on the balance sheet. The letter of credit is due to expire on
September 11, 2003, but may be extended until September 2004.
The Company is from time to time involved in certain legal actions and
customer disputes arising in the ordinary course of business. In the Company's
opinion, the outcome of such actions will not have a material adverse effect on
the Company's financial position or results of operations.
51
13. Profit Sharing Plan/Savings Plan
The Company maintains a voluntary profit sharing plan, including a
Section 401(k) feature, covering all qualified and eligible employees. Company
contributions to the profit sharing plan are determined at the discretion of the
Board of Directors. The Company matches 25% of eligible employees' contributions
to the 401(k) plan up to a maximum of 1.5% of each employee's compensation. The
Company expensed approximately $57,000, $33,000 and $133,000 for the years ended
December 31, 2002, 2001, and 2000, respectively.
14. Equity Plans
Stock Option Plans
The Company has Stock Option Plans (the "Plans") under which incentive
and non-qualified stock options may be granted to its employees, officers,
directors and others. Generally, incentive stock options are granted at fair
value, become exercisable over a four-year period, and are subject to the
employee's continued employment. Non-qualified options are granted at exercise
prices determined by the Board of Directors and vest over varying periods. A
summary of the status of the Company's stock options as of December 31, 2002,
2001 and 2000 and changes during the years then ended is as follows:
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
------------------- -----------
Shares Wtd. Avg. Wtd. Avg.
Available Exercise Exercise
for Grant Shares Price Shares Price
------------------------------------------------------------------------------
Balance, January 1, 2000 394,000 1,878,000 $ 2.33 702,000 $ 2.08
Granted at market (780,000) 780,000 2.37
Cancelled 849,000 (849,000) 2.89
Cancelled outside Plan - (9,000) 1.69
Exercised - (671,000) 1.49
-----------------------------------------------------------------------------
Balance, December 31, 2000 463,000 1,129,000 2.64 256,000 4.20
Authorized 1,400,000 - -
Granted at market or above (661,000) 661,000 1.00
Cancelled 199,000 (199,000) 4.51
Cancelled outside of plan - (3,000) 1.69
Expired (13,000) - -
-----------------------------------------------------------------------------
Balance, December 31, 2001 1,388,000 1,588,000 1.72 408,000 2.44
Granted at market (869,000) 869,000 0.72
Cancelled 220,000 (220,000) 2.04
Expired (5,000) - -
-----------------------------------------------------------------------------
Balance, December 31, 2002 734,000 2,237,000 $ 1.25 688,000 $ 1.79
==============================================================================
The following table summarizes information about stock options
outstanding at December 31, 2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- --------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Price Exercisable Exercise Price
-------- ----------- ----------- -------------- ----------- --------------
Prices Life (yrs)
------ ----------
$ 0.55 - $0.97 1,620,000 7.52 $0.82 340,000 $0.91
1.06 - 1.69 409,000 7.57 1.43 179,000 1.54
2.50 - 6.25 208,000 5.52 4.27 169,000 3.84
--------------------------- ----------- ---- -----------
$ 0.55 - $6.25 2,237,000 7.34 1.25 688,000 1.79
=========== ===========
52
In September 1998, the Company repriced all outstanding employee
options (not including those issued under the Director Plan) to $1.69, the fair
market value on the new grant date. As this reduction in exercise price
represented the third repricing of these options, variable plan accounting was
triggered requiring intrinsic value to be remeasured at the end of each
reporting period. The resultant change in each period was charged or deducted
from expense for that period. The ultimate value of the options was determined
upon exercise or other settlement of the option. During 2000, all options were
exercised or terminated and the final cumulative charge to expense was adjusted
to $163,000.
Dividend Distribution
On June 30, 2000, the Company paid a dividend of $2.05, or
$30,376,000.
Employee Stock Purchase Plan
In May 1995, the Company adopted an employee stock purchase plan (the
"ESPP") which allows full-time employees with one year of service the
opportunity to purchase shares of the Company's common stock through payroll
deductions at the end of bi-annual purchase periods. The purchase price is the
lower of 85% of the average market price on the first or last day of the
purchase periods. An employee may purchase up to a maximum of 500 shares or 10%
of the employee's base salary, whichever is less, provided that the employee's
ownership of the Company's stock is less than 5% as defined in the ESPP.
Pursuant to the ESPP, 250,000 shares of common stock were reserved for issuance.
During 2002, 2001 and 2000, shares purchased were 6,000, 8,145 and 11,207,
respectively. At December 31, 2002, there were 155,581 shares available for
future purchases.
15. Related Party Transactions
In each of 2002, 2001 and 2000, the Company paid premiums on behalf of
the majority stockholder and his wife of $69,600 under split dollar life
insurance policies. As of January 1, 2003, the Company has terminated these
premium payments.
In November 2001, the Company entered into a five year development and
license agreement with a third party owned in part by a Director of the Company.
The agreement requires the third party to design, develop and deliver a product
to be re-sold by the Company in exchange for a royalty fee. In accordance with
the agreement, the Company paid royalty fees totaling $37,500 and $7,500 in 2002
and 2001, respectively.
53
16. Geographic Segment Data
The Company operates in one business segment. The following table
presents information about the Company's operations by geographic area:
Year ended December 31, 2002 2001 2000
- ----------------------------------------------------------------------------------------------
Revenues:
Software license fees
United States
Domestic $ 4,296,000 $ 3,470,000 $ 2,193,000
Export 72,000 209,000 62,000
------------------------------------------------------------
Total United States
software license fees 4,368,000 3,679,000 2,255,000
Europe 1,151,000 1,625,000 3,010,000
Other foreign 985,000 1,080,000 1,289,000
------------------------------------------------------------
Total foreign software
license fees 2,136,000 2,705,000 4,299,000
------------------------------------------------------------
Total software license fees 6,504,000 6,384,000 6,554,000
Services and maintenance
United States
Domestic 7,037,000 7,700,000 9,393,000
Export 252,000 351,000 506,000
------------------------------------------------------------
Total United States
service and
maintenance revenue 7,289,000 8,051,000 9,899,000
------------------------------------------------------------
Europe 2,126,000 2,104,000 2,749,000
Other foreign 879,000 818,000 1,115,000
------------------------------------------------------------
Total foreign service and
maintenance revenue 3,005,000 2,922,000 3,864,000
------------------------------------------------------------
Total service and
maintenance revenue 10,294,000 10,973,000 13,763,000
------------------------------------------------------------
` Total revenue $ 16,798,000 $ 17,357,000 $ 20,317,000
============================================================
Income (loss) from continuing
Operations
United States $ (1,332,000) $ 1,748,000) $ (3,970,000)
Europe (454,000) (908,000) (1,287,000)
Other foreign 458,000 1,134,000 468,000
------------------------------------------------------------
Total loss from
continuing operations $ (1,328,000) $ (1,522,000) $ (4,789,000)
============================================================
Identifiable assets
United States $ 11,786,000 $ 13,274,000 $ 16,002,000
Europe 2,753,000 3,240,000 4,112,000
Other foreign 1,904,000 1,501,000 1,539,000
------------------------------------------------------------
Total assets $ 16,443,000 $ 18,015,000 $ 21,653,000
============================================================
54
17. Selected Consolidated Quarterly Financial Data (Unaudited)
2002 Quarter Ended Dec 31, Sep 30, Jun 30, Mar 31,
-------------------------------------------------------------------------------------------------------------------
Revenues $ 4,697,000 $ 4,846,000 $ 3,302,000 $ 3,953,000
Gross profit 2,975,000 2,875,000 1,295,000 2,046,000
Net (loss) income 299,000 229,000 (1,562,000) (294,000)
Basic and diluted net (loss) income 0.02 0.02 (0.11) (0.02)
per share
Shares used in computing basic
and diluted net (loss) income 14,604 14,604 14,602 14,602
per
share (in thousands)
2001 Quarter Ended Dec 31, Sep 30, Jun 30, Mar 31,
------------------------------------------ ----------------- ------------------- ----------------- -------------------
Revenues $ 4,317,000 $ 3,516,000 $ 4,473,000 $ 5,051,000
Gross profit 2,252,000 1,791,000 2,358,000 2,924,000
Net (loss) income (935,000) (560,000) (196,000) 169,000
Basic and diluted net (loss)
income per share (0.06) (0.04) (0.01) 0.01
Shares used in computing basic and
diluted net (loss) income per
share (in thousands) 14,616 14,612 14,661 14,698
55
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Directors and the executive officers of the Company, their ages,
business experience and the positions currently held by each such person with
the Company are listed below.
Zack B. Bergreen, 57, founded the Company in November 1979. From
November 1979 to January 1998, he served as President, Treasurer and Director of
the Company. In April 1995, he was elected Chief Executive Officer and Chairman
of the Board of Directors. From January 1998 through August 1999 Mr. Bergreen
served as Chairman of the Board and Chief Executive Officer. Mr. Bergreen has
served as Chairman of the Board since August 1999, when Bruce R. Rusch was
elected President and Chief Executive Officer. Following the resignation of Mr.
Rusch on May 30, 2000, Mr. Bergreen resumed the positions of President and Chief
Executive Officer, and on June 27, 2000, was elected as Secretary. Mr. Bergreen
holds Bachelor of Science and Master of Science degrees in Electrical
Engineering from the University of Maryland.
Adrian A. Peters, 53, joined the Company's Board of Directors in June
2000 and is a member of the Audit Committee. He is the President and founder of
Tellstone (previously Boston Partners), a firm that specializes as strategic
advisors to high-tech firms. From 1986 through 1995, he held various positions
as President and CEO of Siemens AG companies. Prior to that he held senior
positions at Federale, an investment firm, Arthur Andersen Consulting and IBM.
Mr. Peters studied science and engineering at the University of Stellenbosch in
South Africa as well as management at Harvard Business School.
Isidore Sobkowski, 46, joined the Company's Board of Directors in June
2000 and is a member of the Audit Committee. He currently serves as the
President and Chief Executive Officer of PrimeCloud, Inc. From 1994 through
1998, he served as the President and Chief Executive Officer at Professional
Help Desk, and upon its acquisition by Computer Associates, served from 1998
through 2000 as a Division Vice President at Computer Associates. From 1984
through 1994, he served as President and Chief Executive Officer of Knowledge
Associates, Ltd. Mr. Sobkowski received a Bachelor of Science in Computer
Science from City College of New York in 1978 and a Master of Science in
Computer Science from City College of New York in 1982.
Eric Siegel, 46, is the newest member of the Astea Board of Directors.
In 1983, he founded Siegel Management Company, a strategy consulting and
investment banking advisory for a diverse client base, principally middle market
firms. His expertise and experience had been utilized by growth companies,
public market and acquisition candidates, industry consolidators and turnarounds
alike. He also serves on the Board of NCO Group (NASDAQ: NCOG) and PSCInfoGroup.
An established author, he has been a lecturer in management at the Wharton
School for over twenty years. Mr. Siegel is a magna cum laude graduate of the
University of Pennsylvania and received an MBA from the Wharton School with
honors.
Rick Etskovitz, 48, joined the Company in June 2000 when he was elected
Chief Financial Officer and Treasurer. He is a certified public accountant and
shareholder of a local accounting firm. From 1986 through 1993, he worked with
the Company as the engagement partner with its independent accounting firm. Mr.
Etskovitz received his Bachelor of Science degree from the Pennsylvania State
University in 1976 and his
56
Masters of Business Administration Degree from the Wharton Graduate School at
the University of Pennsylvania in 1980.
John Tobin, 37, joined the Company in June 2000 and serves as Vice
President and General Counsel. Mr. Tobin is responsible for handling the legal
affairs of the Company, along with various corporate development and business
development initiatives. Prior to joining Astea, John worked at the Philadelphia
law firms Pepper Hamilton and Wolf Block, specializing in corporate transactions
and intellectual property. Prior to returning to the Philadelphia area in 1998,
he worked as a corporate and entertainment lawyer in Los Angeles, specializing
in motion picture, television and music transactions and licensing, most
recently with PolyGram Filmed Entertainment. Mr. Tobin holds a B.S. in Economics
from the Wharton School of the University of Pennsylvania in 1987, and received
his law degree from the University Of Pennsylvania in 1992.
John Reed, 46, joined Astea as Vice President of North American Sales
in July 2002. As a senior executive, he is chartered with leading the Company's
sales operations to drive revenues and market share. John brings to Astea over
twenty years of experience in technology sales and sales management, ranging
from Supply Chain solutions and intelligent software application development, to
computer-based control systems. Prior to joining Astea, John held senior
management positions at i2 Technologies, where he focused on the
Telecommunications and Discrete Manufacturing industries, and Gensym
Corporation, where he was vice president of sales for their communications
business unit. He began his career in sales with such industry leaders as
American Cyanamid and AccuRay Corporation (now part of ABB). John holds a
Bachelor of Science in Chemistry from Penn State University and a Master in
Business Administration from Temple University.
Ashim Bose, 41, joined Astea as Vice President of Customer Services in
February 2003. Mr. Bose is responsible for all customer service and support
operations in Astea. In this capacity he manages the delivery of support,
customization, and professional services to the North American client base.
Ashim comes to Astea from i2 Technologies where he was a Practice Director,
Consulting Services. While at i2, he built a supply chain practice of over 40
consultants generating over $12M in revenue and documenting over $350M in
customer savings in just 4 years. Earlier, he was in technical management roles
at GTE (now Verizon) and Space Telescope Science Institute, a NASA affiliate. He
brings over 12 years of consulting experience on global technology rollouts in
multiple sectors including Automotive, Industrial, Consumer Goods, Telecom,
High-tech, Public Sector, and Healthcare. He has spent the last 9 years in
progressive management roles successfully delivering multi-million dollar
projects to Fortune 1000 clients. He started his career at Marktech Systems, a
boutique consulting firm in the Healthcare sector. He holds a Ph.D. in Computer
Science from the Univ. of Minnesota and a M.S. in Mechanical Engineering from
the Univ. of Houston.
Pat Noble, 54, Managing Director, Europe. Pat brings to Astea thirty
years of expertise in the service-centric environment on which the Company is
uniquely focused. Having joined the organization in 1996, he assumed
responsibility for managing European operations in 1999. Prior to joining Astea,
Pat was managing director at both Servasure Systems Ltd., where he built a
leading Field Service Management System, and at Vistec Computer Services.
Earlier he was responsible for implementation and management of hardware,
software and control systems at organizations such as Midlectron Ltd., Digital
Equipment Co. (DEC) and Accuray Ltd. During his tenure he also led and trained
large teams of field service engineers and customers. He began his career in
field service as a maintenance engineer with Burroughs Business Machines. Pat
received his Bachelors Degree with honors in Electronic Engineering from the
University of Bradford.
Paul Rahme, 34, Managing Director, Asia Pacific. Paul is responsible
for growing Astea International's overall Asia Pacific business with direct
responsibility for sales, service, marketing, finance and administrative teams.
Paul comes to Astea with an extensive background in Asia Pacific regional
management. Previously, he was founder and CEO Annual Long-Term of vEO
Management, an international business
57
development firm specializing in assisting US technology companies expand their
business throughout the region. During his tenure, he assisted numerous
companies in entering the market by establishing partnerships and distribution
networks in Australia, New Zealand, Singapore, Hong Kong, Malaysia, China and
Japan. Paul has also held senior management positions with Infinium, Wall Data
and Visual Concepts Software. He holds both a business management degree and an
advanced marketing degree from NSW Technical College. His undergraduate work was
completed at St. Ignatius College, Riverview in Sydney. An established industry
speaker, Paul most recently presented at Voice 2001 on Biometric Voice
Verification.
Danny Klein, 43, Vice President of Development. Mr. Klein is
responsible for managing the development center which brings to market
value-driven solutions. In this capacity, he executes new product lines and
provides second-level support to Astea offices and customers all over the world.
He is also chartered with enhancing the company's technology infrastructure.
With over 20 years of experience managing the development of market-leading
software, Danny comes to Astea with a strong background in programming and
development methodologies. Previously, he was a software development and project
manager at MLL Jerusalem, a service bureau for banking software solutions.
During his tenure, Danny managed the development of financial applications. He
also led the company's technology upgrade to rapid application development tools
to meet the needs for rapid innovation, scalability and security required in the
industry. Prior to MLL, he managed various systems in the Israeli defense forces
(IDF). Danny holds a Bachelors degree in computer programming from C.E.I.E
Institute and a degree in senior business management from the University of
Haifa.
Section 16(a) of the Exchange Act requires the Company's Directors,
executive officers and holders of more than 10% of the Company's Common Stock
(collectively, "Reporting Persons") to file with the Commission initial reports
of ownership and reports of changes in ownership of Common Stock of the Company.
Such persons are required by regulations of the Commission to furnish the
Company with copies of all such filings. Based on its review of the copies of
such filings received by it with respect to the fiscal year ended December 31,
2002 and written representations from certain Reporting Persons, the Company
believes that all Reporting Persons complied with all Section 16(a) filing
requirements in the fiscal year ended December 31, 2002.
58
Item 11. Executive Compensation.
The following table sets forth information concerning the compensation
for services in all capacities to the Company for the fiscal years ended
December 31, 2002, 2001, and 2000, of the following persons (i) each person who
served as Chief Executive Officer during the year ended December 31, 2002, and
(ii) four other executive officers of the Company in office at December 31, 2002
who earned more than $100,000 in salary and bonus in fiscal 2002 (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------------------------ -------------
Securities
Underlying
Options All Other
Name and Principal Position Year Salary ($) Bonus ($) (# of shares) Compensation ($)
--------------------------- ----- ----------- ---------- ------------- ----------------
Zack B. Bergreen 2002 $ 130,000 -- -- $ 69,600 (2)
Chairman of the Board and Chief 2001 130,000 -- 400,000 (1) 69,600 (2)
Executive Officer 2000 233,971 -- -- 242,897 (3)
Rick Etskovitz 2002 $ 127,050 -- 50,000 (4) --
Chief Financial Officer 2001 119,160 -- 25,000 (4) --
2000 55,538 -- 25,000 (4) --
John Tobin (5) 2002 $ 151,033 -- 50,000 (4) --
Vice President and General Counsel 2001 126,895 -- 25,000 (4) --
2000 42,957 -- 25,000 (4) --
John Reed (6) 2002 $ 65,538 $ 32,847 210,000(4) --
Vice President, North American Sales
Lynn Ledwith (7) 2002 $ 87,667 $ 16,125 100,000(4) --
Vice President, Marketing
(1) Represents options to purchase shares of Common Stock, which was awarded as
compensation for a decrease taken in salary.
(2) Includes premiums for term, split-dollar life insurance paid by the Company
on behalf of the Named Executive Officer.
(3) Includes premiums for term, split-dollar life insurance paid by the Company
on behalf of the Named Executive Officer, payout for consulting services
performed January 2000 through May 2000, and vacation payout.
(4) Represents options to purchase shares of Common Stock, which was awarded
based on merit.
(5) Compensation paid to Coleman Legal, a third party legal services provider.
(6) John Reed joined Astea in July 2002.
(7) Lynn Ledwith joined Astea in April 2002 and terminated in February 2003.
59
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during
the year ended December 31, 2002 to each of the Named Executive Officers:
Individual Grants
-------------------------
Percent of
Total Potential Realizable Value at
Number of Options Assumed
Securities Granted to Annual Rates of Stock Price
Underlying Employees Exercise Appreciation for Option
Options In Fiscal Price Expiration Terms(2)
Name Granted (#) Year ($/Share)(1) Date 5%($) 10%($)
- ---- ----------- ------ ------------ ---- ------------
Rick Etskovitz 50,000(3) 7% $0.89 05/10/2012 $72,486 $115,422
John Tobin 50,000(3) 7% $0.89 05/10/2012 $72,486 $115,422
John Reed 210,000(3) 31% $0.66 08/13/2012 $225,765 $359,493
Lynn Ledwith 100,000(4) 15% $0.89 05/10/2012 $144,972 $230,843
(1) The exercise price per share of each option was fixed by the Board of
Directors.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%)
on the market value of the Company's Common Stock on the date of option
grant over the term of the options. These numbers are calculated based on
rules promulgated by the Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock
option exercises and Common Stock holdings are dependent on the timing of
such exercise and the future performance of the Company's Common Stock.
There can be no assurance that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by the
individual.
(3) Options to purchase shares will vest in equal installments on each of the
first four anniversaries of the grant date.
(4) Options to purchase shares will vest in equal installments on each of the
first four anniversaries of the grant date. Upon termination of her
employment in February 2003, 100,000 options, representing the unvested
portion of this grant, were cancelled.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth, for each of the Named Executive
Officers, information with respect to the exercise of stock options during the
year ended December 31, 2002 and the year-end value of unexercised options:
Value of Unexercised
Shares Numbers of Unexercised In-the-Money Options
Name Acquired on Value Options at Year End at Year End
Exercise(#) Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
----------- ---------- -------------------------- -------------------------
Zack B. Bergreen -- -- 100,000/400,000 --
Rick Etskovitz -- -- 18,750/81,250 --
John Tobin -- -- 31,250/68,750 --
John Reed -- -- --/210,000 --
Lynn Ledwith -- -- --/100,000 --
60
Employment Agreements and Severance Arrangements with Executive Officers
The Company has not entered into employment agreements with any of its
current Executive Officers.
Board Interlocks and Insider Participation
No executive officer of the Company served as a member of the Board of
Directors, compensation committee, or other committee performing equivalent
functions, of another entity one of whose executive officers served as a
Director of the Company. Other than Mr. Bergreen, no person who served as a
member of the Board was, during the fiscal year ended December 31, 2002,
simultaneously an officer, employee or consultant of the Company or any of its
subsidiaries. Mr. Bergreen did not participate in any Company determination of
his own personal compensation matters.
Compensation of Directors
Directors who are not employees of the Company receive a fee of $1,000
for attendance at each regular and special meeting of the Board of Directors,
and are also reimbursed for their reasonable out-of-pocket expenses incurred in
attending meetings. Non-Employee Directors may elect to receive, in lieu of the
foregoing cash compensation, unrestricted shares of Common Stock of the Company.
Shares of Common Stock in lieu of cash compensation are acquired at the fair
market value of the Common Stock on the last day of the calendar quarter during
which the cash compensation was earned and foregone. Non-employee Directors are
also eligible to receive annual stock option grants under the Company's 1995
Non-Employee Director Stock Option Plan. Directors who are employees are not
compensated for their service on the Board of Directors or any committee
thereof.
61
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of March 19, 2003: (i) the name of
each person who, to the knowledge of the Company, owned beneficially more than
5% of the shares of Common Stock of the Company outstanding at such date; (ii)
the name of each Director; and (iii) the name of each current executive officer
of the Company. The following table also sets forth as of March 19, 2003 the
number of shares owned by each of such persons and the percentage of the
outstanding shares represented thereby, and also sets forth such information for
Directors, nominees and executive officers as a group.
Name and Address Of Beneficial Owner Amount of Ownership(1) Percent of Class(2)
- ------------------------------------ ---------------------- -------------------
Zack B. Bergreen(3) 6,892,000 46.9%
c/o Astea International
455 Business Center Drive
Horsham, Pennsylvania 19044
Adrian Peters (4) 20,000 *
Isidore Sobkowski (4) 20,000 *
Eric Siegel 0 *
Rick Etskovitz (5) 52,500 *
John Tobin (6) 50,000 *
John Reed 0 *
Lynn Ledwith 0 *
<FN>
All current directors, nominees and executive officers as 7,034,500 47.5%
a group (8 persons)(1)-(7)
_________________________
* Less than 1% of the outstanding shares of Common Stock.
(1) Except as noted in the footnotes to this table, each person or entity named
in the table has sole voting and investment power with respect to all
shares of Common Stock owned, based upon information provided to the
Company by Directors, officers and principal stockholders. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission (the "Commission") and includes voting and investment
power with respect to shares of Common Stock subject to options currently
exercisable or exercisable within 60 days after the Record Date ("presently
exercisable stock options").
(2) Applicable percentage of ownership as of the Record Date is based upon
14,606,530 shares of Common Stock outstanding as of that date. Beneficial
ownership is determined in accordance with the rules of the Commission and
includes voting and investment power with respect to shares. Presently
exercisable stock options are deemed outstanding for computing the
percentage ownership of the person holding such options, but are not deemed
outstanding for computing the percentage of any other person.
(3) Includes 782,834 shares of Common Stock held by trusts of which Mr.
Bergreen and his wife are the only trustees, 272,342 shares held by trusts
with independent trustees, and 279,019 shares of Common Stock held by a
family limited partnership of which Mr. Bergreen is the sole general
partner. Also included are 100,000 options, all of which are currently
exercisable.
(4) Board Of Directors. Represents options to purchase 20,000 shares, all of
which are currently exercisable.
(5) Chief Financial Officer. Represents 15,000 shares of common stock and also
options to purchase 37,500 shares, 18,750 of which are currently
exercisable, and 18,750 of which shall become exercisable within the next
60 days.
(6) Vice President and General Counsel. Represents options to purchase 50,000
shares, 31,250 of which are currently exercisable and 18,750 of which shall
become exercisable within the next 60 days.
</FN>
62
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Controls and Procedures
Evaluation Of Disclosure Controls and Procedures
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures pursuant to Rule 13a-15 of the
Securities Exchange Act of 1934. Based upon that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company required to be disclosed in the
Company's periodic SEC reports. There have been no significant changes in the
Company's internal control or in other factors which could significantly affect
internal controls subsequent to the date the Company carried out its evaluation.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1)(A) Consolidated Financial Statements.
i) Consolidated Balance Sheets at December 31, 2002 and
2001
ii) Consolidated Statements of Operations for the years
ended December 31, 2002, 2001, and 2000
iii) Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2002, 2001, and 2000
iv) Consolidated Statements of Cash Flows for the years
ended December 31, 2002, 2001, and 2000
v) Notes to the Consolidated Financial Statements
(a)(1)(B) Report of Independent Public Accountants.
(a)(2) Schedules.
a) Schedule II - Valuation and Qualifying Accounts
Schedule listed above has been omitted because the
information required to be set forth therein is not
applicable or is shown in the accompanying Financial
Statements or notes thereto.
63
(a)(3) List of Exhibits.
The following exhibits are filed as part of and incorporated by
reference into this Annual Report on Form 10-K:
Exhibit No Description
2.1 Stock Purchase Agreement, dated August 14, 1998, among the Company, Ixchange Technology Holdings Limited,
Network Data, Inc., Bendata, Inc., Bendata (Europe) Limited LLC, and Bendata Holding, Inc. (Incorporated
herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated September 4, 1998).
2.2 Stock Purchase Agreement, dated December 31, 1998, among the Company, Network Data, Inc. and
Industri-Matematik International Corporation (Incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated December 31, 1998).
3(i).1 Certificate of Incorporation of the Company (Incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1, as amended (File No. 33-92778)).
3(ii).1 By-Laws of the Company (Incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, as amended (File No. 33-92778)).
4.1 Specimen certificate representing the Common Stock (Incorporated herein by
Reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1, as amended (File No.
33-92778)).
10.1 1994 Amended Stock Option Plan (Incorporated herein by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, as amended (File No. 33-92778)).
10.2 Form of Non-Qualified Stock Option Agreement under the 1994 Amended Stock
Option Plan (Incorporated herein by reference to
Exhibit 10.2 to the Company's Registration Statement
on Form S-1, as amended (File No. 33-92778)).
10.3 Form of Incentive Stock Option Agreement under the 1994 Amended Stock Option
Plan (Incorporated herein by reference to Exhibit
10.3 to the Company's Registration Statement on Form
S-1, as amended (File No. 33-92778)).
10.4 1991 Amended Non-Qualified Stock Option Plan (Incorporated herein by reference
to Exhibit 10.4 to the Company's Registration Statement on Form S-1, as amended (File No. 33-92778)).
10.5 Form of Non-Qualified Stock Option Agreement under the 1991 Amended Non-
Qualified Stock Option Plan (Incorporated herein by
reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1, as amended (File
No. 33-92778)).
10.6 1995 Employee Stock Purchase Plan (Incorporated herein by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1, as amended (File No. 33-92778)).
10.7 Amendment No. 1 to 1995 Employee Stock Purchase Plan (Incorporated herein by
reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
September 30, 1997).
10.8 1995 Employee Stock Purchase Plan Enrollment/Authorization Form (Incorporated
herein by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-8, filed on September
19, 1995 (File No. 33-97064)).
64
10.9 Amended and Restated 1995 Non-Employee Director Stock
Option Plan (Incorporated herein by reference to
Exhibit 10.9 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.10 Form of Non-Qualified Stock Option Agreement under the 1995 Non-Employee
Director Stock Option Plan (Incorporated herein by
reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-8, filed on
September 19, 1995 (File No. 33-97064)).
10.11 1997 Stock Option Plan (Incorporated herein by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).
10.12 Form of Non-Qualified Stock Option Agreement under the 1997 Stock Option Plan.
(Incorporated herein by reference to Exhibit 10.11 to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.13 Form of Incentive Stock Option Agreement under the 1997 Stock Option Plan
(Incorporated herein by reference to Exhibit 10.12 to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996).
10.14 1998 Stock Option Plan (Incorporated herein by reference to Exhibit 10.14 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.15 Form of Non-Qualified Stock Option Agreement under the 1998 Stock Option Plan.
(Incorporated herein by reference to Exhibit 10.15 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.16 Form of Incentive Stock Option Agreement under the 1998 Stock Option Plan.
(Incorporated herein by reference to Exhibit 10.16 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.17 Loan and Security Agreement, dated August 1, 1999, between
the Company and Silicon Valley Bank (Incorporated
herein by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1999).
10.20 Modification Agreement dated April 30, 1998 by and
among the Company, PNC Bank, National Association and
PNC Leasing Corp. (Incorporated herein by reference
to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998).
10.22 Letter to John G. Phillips regarding severance terms (Incorporated herein by reference to Exhibit 10.22 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1999).
10.23 Letter to Bruce R. Rusch regarding employment terms. (Incorporated herein by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.24 Letter to Howard P. Kamins regarding employment terms (Incorporated herein by reference to Exhibit 10.24 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1999).
10.25 Consulting Agreement between the Company and Zack B.
Bergreen (Incorporated herein by reference to Exhibit
10.25 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999).
10.26 Transfer of Rights Agreement regarding PowerHelp (Incorporated herein by reference to Exhibit 10.26 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1999)
10.27 Guaranty in connection with Transfer of Rights Agreement regarding PowerHelp (Incorporated herein by
reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year ended December 31,
1999).
21.1* Subsidiaries of the Registrant.
65
23.1* Consent of BDO Seidman, LLP.
24.1* Powers of Attorney (See the Signature Page).
99.1* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 - President and Chief Executive Officer
99.2* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 - Chief Financial Officer
-------------------
* Filed herewith
(b) Reports on Form 8-K.
The Company filed no current reports on Form 8-K, or amendments to
current reports on Form 8-K/A, during the fiscal quarter ended December 31,
2002.
(c) Exhibits.
The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) set forth above.
66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 28th day of March
2003.
ASTEA INTERNATIONAL INC.
By: /s/Zack Bergreen
--------------------------------------
Zack Bergreen
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Zack Bergreen and Rick Etskovitz, jointly
and severally, his attorney-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-K and to file same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Zack Bergreen President and Chief Executive March 28, 2003
------------------
Zack Bergreen Officer (Principal Executive Officer)
/s/Rick Etskovitz. Vice President and Chief March 28, 2003
------------------
Rick Etskovitz Financial Officer (Principal
Financial and Accounting
Officer)
/s/Adrian Peters Director March 28, 2003
-------------------
Adrian Peters
/s/Zack Bergreen Director March 28, 2003
------------------
Zack Bergreen
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CERTIFICATIONS
I, Zack B. Bergreen, the Chief Executive Officer and Principal Executive Officer
of Astea International Inc. (the "Company"), certify that:
1. I have reviewed this annual report on Form 10-K of Astea International
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003
By: /s/ Zack B. Bergreen
---------------------------------
Zack B. Bergreen
Chief Executive Officer
(Principal Executive Officer)
68
I, Rick Etskovitz, the Chief Financial Officer and Principal Financial and Chief
Accounting Officer of Astea International Inc. (the "Company"), certify that:
1. I have reviewed this annual report on Form 10-K of Astea International
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
d) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
e) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
f) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
c) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
d) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003
By: /s/ Rick Etskovitz
---------------------------------
Rick Etskovitz
Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
69
Consent of Independent Certified Public Accountants
Astea International, Inc.
Subsidiaries
Horsham, Pennsylvania
We hereby consent to the incorporation by reference in the Registration
Statements (Nos. 333-33825, 333-34865, and 333-61981) on Form S-8 and (Nos.
333-11949 and 333-17459) on Form S-3 of Astea International, Inc. and
subsidiaries of our report dated February 21, 2003, relating to the consolidated
financial statements of Astea International, Inc. and subsidiaries appearing in
the Company's Annual Report on Form 10-K for the year ended December 31, 2002.
BDO Seidman, LLP
Philadelphia, PA
March 28, 2003
70